Crypto loans are an alternative way of borrowing & lending that allow you to use your cryptocurrency assets as collateral. Crypto loans have some noticeable pros, such as low-interest rates, not needing to show your credit score or income information, and near-instantaneous funding: however, they also have a few pitfalls you need to be aware of, such as the volatility and price fluctuation of crypto, small cryptocurrency support for loans, and overall lack of insurance from most crypto platforms.
If crypto loans are your cup of tea, you're in luck, as many Canadian crypto exchanges support crypto loans. In particular, we recommend you use Crypto.com, a global cryptocurrency exchange that supports the buying, selling, staking and lending of crypto across hundreds of currencies and coins.
What Is A Crypto Loan?
A crypto loan is an alternative way of borrowing & lending where you use digital assets as collateral. Crypto loans are very similar to mortgages and auto loans, where you need to pledge your home or car as collateral against default, but in this case, you'll be pledging your cryptocurrency holdings instead. Naturally, if you can't repay what you've borrowed, you'll be in trouble, as you could lose the crypto investment you pledged in full.
One of the biggest benefits of having a crypto-backed loan is that you don't need to convert your crypto into a fiat currency (such as CAD or USD), and you also don't have to use your home or car as collateral. This means that you won't lose out in case your crypto assets go up in value, and you could hold on to them instead of selling them to further benefit from their increase in price. Additionally, you could use a crypto-backed loan to invest in other investment prospects, and you could also use it to further diversify your investment portfolio.
However, you should keep in mind that the value of cryptocurrencies can be way more volatile compared to mortgage and auto loans, and crypto prices can violently fluctuate over the course of weeks or even a single day, which means that the value of your pledge can drop lower than what you borrowed against. Additionally, even though your crypto holdings continue to be yours, you'll lose the ability to trade them or sell them for as long as your loan has an outstanding balance.
How Do Crypto Loans Work?
Crypto lenders usually determine how much they're willing to allow you to borrow depending on whether or not you own far more crypto than you're looking to borrow. This is pretty different from traditional lending, where traditional lenders take a look at your credit score or income profile before they determine whether or not they're willing to grant you secured loans. This is an advantage, however, as you can rest assured that a crypto loan won't affect your credit score negatively.
Additionally, a loan-to-value (LTV) ratio will be used to determine the value of the crypto loan you're borrowing against the value of the collateral you're using to get your loan. In crypto lending, lenders usually offer loans at a maximum of 50% for a 12-month term, but this can differ a lot depending on the crypto lending platform that you use and the crypto asset that you're using as collateral. A 50% LTV means that you'll need $10,000 worth of crypto to secure a $5,000 crypto loan against default.
Calculating the LTV ratio is pretty easy, as you only need to divide the amount of the loan by the total collateral amount (LTV% = (Total Loan Amount/Total Collateral Amount) * 100).
How To Borrow Against Crypto In Canada
Thankfully, borrowing against digital currency in Canada is easy, even though not all crypto exchanges support this feature. To get a crypto loan in Canada, you'll need to follow these steps:
1. Sign Up To A Crypto Lending Platform
The first step that you'll need to take is to create an account at one of many crypto lending platforms or crypto exchanges that support crypto loans. Here are a few of the top platforms you can use for this purpose:
1. Crypto.com – Best Overall
Best For Altcoins
|
Trading fees: 0.4% |
★★★★ Rated 4.3/5 |
Crypto.com is a major global player that brings a mature, proven exchange to Canadian crypto investors. It supports 100+ cryptocurrencies, making it an ideal fit for anyone looking to invest in undiscovered altcoins before the masses.
Crypto.com offers some unique features that no other Canadian cryptocurrency exchanges can match. Users can trade options and futures contracts, earn interest by staking their coins, and make trades with up to 10x leverage when they feel particularly confident in a coin.
Crypto.com also has invested an enormous amount of money into its platform security, which makes trading with them extremely safe. The exchange is lightning quick (prices update dozens of times per second), which gives day traders an upper hand over the rest of the market.
Overall, Crypto.com is a solid crypto exchange for investors looking to cash in on brand new altcoins. If you're just looking to buy more mainstream coins like Bitcoin and Ethereum, though, I suggest either Bitbuy or CoinSmart instead.
Features
- Average trading fees (0.4%)
- Supports 100+ cryptocurrencies
- Allows up to 10x leverage
- Trade crypto derivatives (futures and options contracts)
- Earn daily interest by staking your coins
- Purchase newly-listed coins at up to 50% off
- Free deposits from all cryptocurrencies
Cost
- Account Opening: Free
- Trading Fees: 0.4%
Best For
Investors looking to buy altcoins and other new crypto assets before they go mainstream.
2. Binance
Binance is an international cryptocurrency exchange that currently serves as the world's largest crypto trading platform by volume of daily trading. It began operations in 2017 and is now headquartered in the Cayman Islands.
Binance was founded in Hong Kong but later moved its headquarters overseas due to increased government intervention in cryptocurrencies. It has several notable characteristics, including powerful charting tools and access to the Binance Earn feature, as well as a Binance Visa Card.
Features
- Supports 300+ cryptocurrencies
- Supports 50+ fiat currencies
- Binance Earn feature
- Binance Visa Card
- Advanced charting tools
- Earn lower fees by using the exchange's native currency (Binance Coin)
Cost
- Crypto deposit fees: Free
- Fiat deposit fees: From 0% to 3.5%
- Crypto withdrawal fees: From 0% to 2,5%
- Taker fees: From 0.04 to 0.1%
- Maker fees: From 0.02 to 0.1%
- Futures trading maker fees: 0.02%
- Futures trading taker fees: 0.04%
- Instant buy/sell trade fees: 0.5%
- Debit/credit card purchases: 4.5%
Best For
Investors interested in investing in relatively unknown altcoins.
3. Gemini
Gemini is a cryptocurrency exchange based in New York and regulated by the NYDFS. Currently, Gemini supports over 50 cryptocurrencies, including some of the biggest like Bitcoin, Ethereum, Litecoin and Bitcoin Cash.
Some of Gemini’s best features include the MyPortfolio dashboard, from which you can control all your transactions and see the history of all your trades, and the ActiveTrader platform, ideal for seasoned crypto investors looking for advanced charting tools, multiple order types and block trading.
For new traders, Gemini offers a $10 bonus credited directly to your account; it can be used to invest in more crypto immediately.
Features
- Great User Interface
- ActiveTrader platform
- “My Portfolio” Feature
- Gemini Mobile App
- Supports over 50 cryptocurrencies
Cost
- Trading Fees: From 2.99% to 0.99% (based on volume)
- Debit Card Deposit: 3.49%
- Mobile App Fee: 0.5%
- Monthly Withdrawals: 10 free withdrawals every month
Signup Bonus
$10 signup bonus
Best For
New and experienced investors looking for an intuitive platform and advanced investing tools.
Related: Although the above-mentioned platforms are good and allow taking out a crypto loan, they're not the best crypto exchanges in Canada, so if you're interested in investing in crypto but loans aren't your main goal, we recommend your try VirgoCX, Bitbuy or CoinSmart instead. There are other options out there like Newton, Shakepay and Wealthsimple Crypto, but they're more expensive.
2. Lock In Your Crypto Collateral To Borrow The Loan You Want
Once you've created an account in a crypto lending platform or crypto exchange that supports crypto borrowing & lending, the next step will be to lock in your crypto collateral so that you can apply for a loan and borrow the amount you're looking for. Remember that you'll need to have more crypto capital than the amount you're looking to borrow.
3. Wait For The Platform To Approve Your Request
This part of the process can be pretty tedious; you'll need to wait for the crypto lending platform or exchange to approve your borrow request, which could take a while depending on the crypto capital you allocated to get the loan. You won't be able to do much else as you wait for the loan to be accepted, but once it is, you can go to the next step.
4. Pay Off The Loan
The last step of the process will be to pay off your loan so that you can have your crypto assets returned to you. One thing to note is that you most likely won't be able to repay your crypto loan through monthly payments as you would traditional loans: instead, the full balance you loaned will need to be paid at a specific maturity date (which works similarly to a deadline).
What Is A Margin Call In Crypto Loans?
In case the value of your crypto collateral goes down by a significant margin compared to your loan's LTV, a margin call could happen. In this case, you'll either need to put up more crypto collateral or pay down the loan in full so that the LTV of the original loan can be maintained.
When this happens, you'll usually receive an email from the platform/lender with a deadline of days (or hours, even) to pledge more crypto. If you don't add more assets to the platform as collateral, your LTV will rise, and the platform/lender could liquidate your collateral right then and there.
Not all platforms are like this, however, and they all have their own guidelines. However, be careful if your LTV reaches a percentage of around 65%, as most lenders trigger margin calls around that percentage to avoid the LTV from reaching 85%, which is where they would liquidate your collateral.
One thing to note, however, is that some platforms support reverse margin calls if your crypto increases in value, meaning that you can have a part of your locked crypto collateral returned to you before the term ends.
Crypto Loans In Canada: Pros And Cons
| Crypto Loan Pros | Crypto Loan Cons |
| Crypto loans have lower interest rates compared to traditional lending (some borrowing rates can be as low as 2% or go even lower depending on the platform you're using). | Crypto loans are subject to way more volatility and price fluctuation than traditional lending, which means that the price of the coin you've used as collateral can drop dramatically and in very little time, which could easily trigger a margin call. |
| You don't need to worry about credit scores, and you also don't need to divulge your income or employment requirements in order to get Bitcoin loans. The only thing you'll need is to sign up to a platform that supports crypto lending and prove you have enough crypto to back up your Bitcoin loan request. | Similar to crypto staking, once you've locked in your assets as collateral for a crypto loan, you won't be able to use them for trading. Additionally, you might not be able to cash out your collateral if the value of the crypto asset you used drops. |
| Most crypto platforms that support lending will allow you to get funding nearly instantaneously, which is great. However, be aware that it could take up a few more business days for funds to reach a traditional bank account, but this is still faster than traditional lending. | Not all cryptocurrency tokens can be used for cryptocurrency loans, and this will largely depend on the crypto platform that you're using. Some platforms, however, only allow as little as 2 or 3 cryptocurrencies to be used as collateral. |
| Since borrowing and lending aren't technically selling or trading, your loan and payback cannot be considered capital gains, which means that crypto loans aren't affected by taxes. However, if your crypto collateral gets liquidated by the lender, it might trigger a taxable event. | Not all cryptocurrency lending platforms pay out your crypto loans in fiat, and the crypto platforms that do so in Canadian dollars are rare, which means that you might have to go from platform to platform before you can get your returns in CAD. |
| Crypto loans are also pretty easy to get, as you won't need a savings or checking account to borrow against crypto assets. All you'll need is to sign up to a crypto lending platform and start from there. | The fact that you're not using a traditional savings account comes with a price: your assets in a crypto lending platform are not insured most of the time, which is especially problematic if the platform becomes insolvent or if you lose money due to a security breach. |
In Summary
Crypto loans are an alternative way of borrowing & lending that allow you to use your cryptocurrency assets as collateral. Crypto loans have some noticeable pros, such as low-interest rates, not needing to show your credit score or income information, and near-instantaneous funding: however, they also have a few pitfalls you need to be aware of, such as the volatility and price fluctuation of crypto, small cryptocurrency support for loans, and overall lack of insurance from most crypto platforms.
If crypto loans are your cup of tea, you're in luck, as a sizable amount of crypto exchanges support crypto loans. In particular, we recommend you use Crypto.com, a global cryptocurrency exchange that supports the buying, selling, staking and lending of crypto across hundreds of currencies and coins.
