Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Ultra-Wealthy Families Use Crypto-Backed Lending for Liquidity
Transcript
- Lucas: So here's a number that caught my attention recently: in the first quarter of 2026, total outstanding crypto-backed loan volume at major U.S. private banks hit roughly three and a half billion dollars. That's up about 40 percent from the same period last year. Luna: Wait, private banks are doing crypto loans? I thought most of that stuff was happening on DeFi platforms or through crypto-native lenders like BlockFi used to do. Lucas: That used to be true. But the collapse of BlockFi and Celsius in 2022 taught a lot of ultra-wealthy families a hard lesson about custodial risk and unregulated lending. What's happening now is much more conservative. Private banks like Goldman Sachs' private wealth arm and some multi-family offices have started offering structured loans backed by Bitcoin or Ethereum, but with institutional custody through a regulated third party. Lucas: The terms are also way more conservative than the crypto-native platforms ever were. Typical loan to value, or LTV, ratios right now are between 25 and 50 percent. So if you put up ten million dollars worth of Bitcoin, you might borrow between two and a half and five million dollars. Luna: And the interest rates? I'm guessing they're not cheap. Lucas: They're actually competitive with traditional securities-based lending. We're seeing rates around SOFR plus 150 to 250 basis points. So today, with SOFR around 4.5 percent, you'd be looking at 6 to 7 percent. That's not cheap, but it's cheaper than a personal loan or a credit card, and way better than a margin call on a concentrated stock position. Luna: Right, because if you have a concentrated stock position and you take a margin loan, a 30 percent drop can trigger a margin call. But with crypto, the volatility is even higher. How do the banks protect themselves? Lucas: That's the key question. The banks require overcollateralization, and they monitor the collateral daily. If the value of the crypto drops, say, 15 percent from the loan origination value, they'll issue a margin call. The borrower has to add more crypto or cash, or the bank liquidates some of the collateral. But here's the important part: the liquidation is done through a regulated custodian, not a flash crash on an exchange. So it's slower and more orderly. Luna: Still, that's a scary scenario for someone who has a large crypto position. So who's actually using this? Lucas: Let me give you a concrete example. I spoke with a wealth adviser at a single-family office in New York. Their client is a real estate developer who had accumulated about 80 million dollars in Bitcoin over the past five years. He didn't want to sell because he'd trigger a 20 percent long-term capital gains tax. But he needed 50 million dollars liquidity to close on a commercial property acquisition. Luna: Fifty million dollars? That's a huge loan. What LTV would that be? Lucas: About 62 percent, which is actually higher than what most banks would offer. But because he had a long track record with the bank and the collateral was held at a major custodian, they structured it as a one-year loan with a 6.5 percent interest rate. He used the cash to buy the property, and his Bitcoin sat untouched. Luna: So he avoided the tax bill, kept his upside exposure, and got the property. That's a textbook win. But what happens if Bitcoin drops 30 percent during that year? He'd have to come up with a lot of cash quickly. Lucas: Exactly. And that's the risk. The adviser told me they stress-tested the portfolio with a 50 percent drawdown. In that case, the developer would need to post about 15 million dollars in additional collateral. He had other liquid assets set aside for that contingency. So it's not for someone who's all-in on crypto with no backup. Luna: Right. So the strategy requires a diversified balance sheet beyond just the crypto. That's a theme we see across a lot of ultra-wealthy techniques—they only work if you have other dry powder. Lucas: Exactly. Another trend I'm seeing is using stablecoin yields as a form of collateral. Some family offices are depositing USDC or USDT into yield-generating protocols through a regulated trust company, then borrowing against that yield stream. It's more complex, but the LTV can be higher because the collateral is less volatile. Luna: Interesting. So the stablecoin itself is earning maybe 4 or 5 percent, and they borrow at 6 percent—that's negative carry. Why would they do that? Lucas: Because the borrowed money is used for something that returns more than the spread. Maybe a private equity deal with target returns of 15 to 20 percent. Or they want to avoid triggering a tax event. The carry is the cost of not selling. Luna: That makes sense. It's essentially a tax deferral strategy dressed up as a loan. Lucas: Precisely. And the IRS hasn't issued clear guidance on whether crypto-backed loans are taxable events. In traditional securities lending, the IRS treats margin loans as non-taxable because you haven't sold the asset. Most tax attorneys believe the same logic applies to crypto, but there's always the risk of future guidance changing that. Luna: So there's regulatory uncertainty. But for families who are comfortable with that, it's a powerful tool. Lucas: Look, if today's conversation helped you think about a decision differently, I'll just say that this show stays ad-free because of listener support. If you found value in it, you can buy me a coffee at buy me a coffee dot com slash fexingo. No pressure, just a way to keep these episodes coming. Luna: Yeah, I think that's fair. We cover a lot of niche stuff, and it helps us keep the research deep. So if it's useful, throw a few dollars in the virtual jar. Lucas: So back to the mechanics. One more case I want to highlight: a technology founder who used crypto-backed lending to fund a life insurance premium. He had a large Ethereum position but didn't want to sell because he believed in the long-term appreciation. He borrowed against the Ethereum to pay a seven-figure premium on a private placement life insurance policy. Luna: That's interesting—using debt to fund an insurance policy that itself has tax advantages. So the loan interest might be deductible, and the policy grows tax-deferred. Lucas: Exactly. It's a triple play: no capital gains trigger on the Ethereum, the insurance policy's cash value grows tax-free, and the interest on the loan may be investment interest expense subject to certain limits. Advisers who understand both crypto and high-net-worth planning are increasingly stitching these together. Luna: Who are the main lenders in this space? Is it just the big private banks, or are there specialty firms? Lucas: A mix. Goldman Sachs' private wealth, JPMorgan's private bank, and some trust companies like Fidelity Digital Assets offer these loans. There are also smaller firms like Unchained Capital that focus specifically on Bitcoin-collateralized loans. But for ultra-high-net-worth, the family office channel is dominant because the loan sizes can be tailored above 10 million dollars. Luna: And the custody piece—how do families ensure their crypto isn't lost or stolen while it's being used as collateral? Lucas: This is critical. Most institutional loans require the crypto to be held in a qualified custodian like Coinbase Custody or Gemini Custody, or a trust company with a banking charter. The borrower retains ownership, but the custodian has a control agreement with the lender. So if the borrower defaults, the lender can liquidate without needing the borrower's key. Luna: That means giving up control of your private keys, essentially. Some crypto purists would hate that. Lucas: Absolutely. But for large sums, self-custody isn't practical for a loan. The lender needs assurance that the collateral exists and can't be moved. So it's a trade-off: you lose some sovereignty, but you gain liquidity without selling. Luna: What about the possibility of a flash crash? If Bitcoin drops 40 percent in a day, the bank might not be able to liquidate fast enough. Lucas: That's a real risk. Most loan agreements include a 'cure period' of 24 to 48 hours, but if the drop is sudden and severe, the bank may have to sell at distressed prices. Some family offices we've talked to mitigate this by maintaining a buffer—borrowing only 20 percent LTV instead of the maximum 50 percent—so that even a 50 percent drop doesn't trigger a margin call. Luna: So it comes back to being conservative with leverage. That seems to be the through line in all these strategies. Lucas: Right. The ultra-wealthy don't use these tools because they're risky. They use them because they can afford to be conservative and still capture the benefits. Crypto-backed lending is still early stage, but the volume numbers suggest it's becoming a standard tool in the family office toolkit.