According to Silicon Valley Bank, bitcoin lending is entering a new phase of institutional maturity. The bank highlighted that bitcoin lending has emerged from the crypto credit crisis of 2022 with improved risk controls, increased institutional interest, and a trajectory towards reduced borrowing costs.
— The bank noted that bitcoin lending practices have transitioned towards overcollateralization, enhanced transparency, and better risk management following the collapses of BlockFi, Celsius, and Genesis.
— There is a growing institutional momentum as banks broaden their bitcoin-backed lending, with the total of crypto-backed loans hitting $67 billion, and Ledn completing the first investment-grade-rated BTC-backed asset-backed security (ABS).
— The report indicated that an influx of bank and private credit capital could lower borrowing costs, while the Lightning Network may enhance the efficiency and speed of bitcoin-backed lending.
Bitcoin
What was once primarily governed by lightly regulated crypto lenders is now increasingly adopting the principles of traditional finance, such as prudent collateral management, greater transparency, and more disciplined underwriting practices, according to the bank.
«Bitcoin has spent much of its existence trying to prove its legitimacy,» wrote Anthony Vassallo, the bank’s director of crypto, and research analyst Josh Pherigo. «Today, many consider it as collateral offering instant and global liquidity, rapid settlement, fungibility, and minimal risk,» they added.
Institutional engagement is on the rise. The authors mentioned that several large U.S. banks are now providing bitcoin-backed credit options, and the total crypto-backed lending has risen to $67 billion, reflecting a 49% increase year-over-year.
Bitcoin-backed lending continues to be a small yet rapidly growing segment of the credit markets. Lending firm Ledn estimates that the current consumer BTC-backed loan market is approximately $3 billion, but previously argued that it could expand to $1 trillion over the next decade as more long-term BTC holders look for liquidity without needing to sell their assets.
The growth potential is based on a straightforward principle: as bitcoin ownership becomes more widespread and prices increase, holders are more inclined to borrow against their appreciated collateral for reasons related to tax efficiency, working capital, or lifestyle requirements, while lenders feel more secure underwriting overcollateralized loans backed by a highly liquid asset.
The bitcoin lending sector underwent significant changes due to the failures of Celsius, BlockFi, and Genesis during the 2022–2023 crypto credit turmoil. While each company had distinct business models, they shared common weaknesses: maturity mismatches, excessive leverage, concentrated counterparty risk, and the rehypothecation of client assets.
These failures highlighted the necessity for conservative underwriting, transparent risk management, and fully collateralized lending—principles that have become the foundation for the next generation of BTC-backed lenders, as noted in the SVB report.
Notable transactions, such as Ledn’s $188 million asset-backed security, the first bitcoin-collateralized deal to achieve an investment-grade rating from a Nationally Recognized Statistical Ratings Organization, illustrate the increasing confidence in BTC-backed credit frameworks, according to SVB.
While rates for bitcoin-backed loans generally range from 7.5% to 16% annual percentage rate (APR), which is considerably higher than traditional financing options, SVB anticipates that growing participation from banks and private credit funds will eventually narrow these spreads. Early indicators are already visible, including Strike’s recently announced 7.5% rate on term loans exceeding $5 million, supported by a $2.1 billion credit facility from Tether.
Looking ahead, the report suggested that the next growth phase will rely on enhancing access to institutional capital as much as on borrower demand. The bank identified the Lightning Network as a potential game-changer, facilitating near-instant, low-cost collateral transfers, margin calls, and liquidations, which could enhance the efficiency and scalability of bitcoin-backed lending within established financial markets.