MW After bitcoin's fall, pity those wildly enthusiastic investors who borrowed billions against crypto
By Quentin Fottrell
The speculation that bitcoin would hit $200,000 in 2025 now seems like a dream. Because it was.
Galaxy Research reported in November that crypto-collateralized lending reached a record $73.6 billion.
"Hodl" space for this group of investors.
As bitcoin prices head south, investors may hold their breath and wonder whether it was wise to go where Nobel-winning economists feared to tread. Or they will shrug and say, "Time is on my side." After all, it's not always wise to invest in a largely untested, decentralized asset without nerves of steel. And if you borrowed money against bitcoin? That's a horse of a different color. Roughly 600,000 margin accounts were held by brokerage firms prior to the 1929 stock-market crash. These loans helped to exacerbate the effects of the stock-market crash and Great Depression.
The speculation that bitcoin would hit $200,000 in 2025 now seems like a dream. Mostly, because it was. There are volatile assets - penny stocks, leveraged ETFs, emerging-market funds - and then there is crypto. If you thought gold was a hedge against economic troubles, geopolitical tensions, potential tech bubbles, inflation, high interest rates, a housing market that has barely given an inch and growing worries about the labor market, think again. People forget about past follies, either by choice and/or because they're distracted by the next shiny thing.
And now bitcoin (BTCUSD), the cryptocurrency that Nobel Prize-winning economist Paul Krugman has repeatedly decried as a Ponzi scheme - strong words for a trillion-dollar asset - is being battered (again). Hovering at $65,000 per bitcoin early Friday, the bloodletting isn't over yet. It peaked at more than $126,000 last October, but those heady days are long gone. Bitcoin began life as an alternative currency, one with immense volatility, and crypto aficionados are telling their followers to hold (or "hodl"). Scores of people have even borrowed against it.
Related: Gold is back above $5,000, but is it a high-risk bet?
It's easy to borrow against crypto
Coinbase (COIN) introduced a crypto-backed loan product in January 2025 when it relaunched bitcoin-collateralized loans. The exchange's crypto-backed loans allow customers to borrow USDC stablecoin by using crypto held on Coinbase as collateral. At launch, you can borrow up to $5 million USDC using bitcoin as collateral and up to $1 million USDC using Ethereum, it says. Coinbase, Binance, Ledn and Strike also offer these services, but they all require limits on borrowers' loan-to-value ratio (LTV) - often 50% to 75% - to help mitigate potential risks.
The collateralized crypto market is hard to gauge. Galaxy Research reported in November that crypto-collateralized lending reached a record $73.6 billion. By the end of the third quarter, nearly $41 billion in loans were outstanding on DeFi platforms - anonymous peer-to-peer financial services available - the highest quarter-end level on record and up about 55% in just one quarter. This does not reflect traditional consumer borrowing, but rather crypto holders using digital assets as collateral as DeFi credit markets grow in size and activity.
Enness Global, a financial brokerage and debt-broking firm, says it's simple to borrow against your crypto without selling it. With a 50% LTV, if you pledge $400,000 worth of bitcoin, you can borrow $200,000. When you repay the loan, you get your bitcoin back. "In one of our cases we assisted an ultra-high-net-worth individual in securing a non-recourse crypto loan on their bitcoin, with an LTV of 50% on an open revolving facility. This ensured that the client could use their cryptocurrency holdings as collateral to access a flexible line of credit," they said.
Related: Consumers should expect more pain in 2026
There are volatile assets - penny stocks, leveraged ETFs, emerging-market funds - and then there is crypto.
'My retirement is completely in bitcoin'
And borrowing against bitcoin is what this 51-year-old told the Moneyist she has done to fund her retirement. She, too, believed bitcoin could hit $200,000 by the end of 2025: "With bitcoin, there is a limited supply and it's not run by one organization or one person. A big drop happens every couple of years, and it's normally what happens before a huge pump. You've had banks and nation-states buying into bitcoin and exchange-traded funds. I'm not a financial whiz kid, but investors are trying to bring the price down so they can buy as much as possible."
"My retirement is completely in bitcoin," she said. She invested in Strategy, a bitcoin treasury company. She also borrowed against bitcoin, using Firefish, a noncustodial peer-to-peer lending platform, which puts your bitcoin into escrow. With Firefish, bitcoin borrowers lock their bitcoin as collateral in wallets, while investors fund these loans for yield. "I apply for a loan, lock in my bitcoin in an on-chain escrow, and receive funds. Why don't more people do what I'm doing? What's the catch? I don't see one." Well, except a prolonged dip in bitcoin.
President Donald Trump's initial moves last year to turn the U.S. into a bitcoin "superpower" included cryptocurrency, private equity and real estate in 401(k) retirement plans. It was described by some as a "new dawn" for crypto, but in truth it was not nearly enough to bring anything resembling stability to the market. He signed an executive order to allow the Department of Labor and other federal agencies to create more exposure for "alternative assets," including private equity, real estate and digital assets, for defined-contribution retirement plans.
Related: Why do so many economists fear a 1929-style crash?
There is no bitcoin 'superpower'
The executive order provides guidance; it is not legislation. It merely directed the Securities and Exchange Commission to consult with the Department of Labor to explore ways to allow 401(k) plan participants to have greater access to alternative assets. Stocks on the Dow Jones Industrial Average DJIA DJIA, S&P 500 SPX and Nasdaq COMP are openly traded. Private equity, on the other hand, puts money in private firms that don't release detailed financial records. (Fiduciaries do have a legal obligation not to invest in inappropriate and/or risky assets.)
If you are a bitcoin investor and/or borrowed against the crypto, brace yourself for a bitcoin winter of discontent. Matt Hougan, chief investment officer at Bitwise Asset Management, a global investment firm specializing in cryptocurrency and digital-asset investment products, wrote this week: "This is not a 'bull market correction' or 'a dip.' It is a full-bore, 2022-like, Leonardo-DiCaprio-in-The-Revenant-style crypto winter - set into motion by factors ranging from excess leverage to widespread profit-taking by OGs," he said.
So how long will this slide last? Over a year, Hougan estimates. "Bitcoin peaked in December 2017 and bottomed in December 2018. It peaked again in October 2021 and bottomed in November 2022. By that measure, we're in for a rough stretch. After all, bitcoin peaked in October 2025. Should we go away until next November? I don't think so. The more time I've spent analyzing the current 'winter' the more I've realized it started back in January 2025. We just couldn't see it because flows from ETFs and Digital Asset Treasuries obscured the picture."
There may be hope for the "hodls," after all.
Previous columns by Quentin Fottrell:
My brother refuses to sell our family's $150K lake house, yet I pay all the bills. Do I push it and risk ruining our relationship?
Chase cut my credit-card limit due to lower usage. Will this affect my credit score and lead other banks to do the same?
'I love being debt-free': I'm in my mid-50s and buying a house. Do I take out a $400K mortgage or use my Roth IRA?
-Quentin Fottrell
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(END) Dow Jones Newswires
February 06, 2026 11:17 ET (16:17 GMT)
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