Crypto Lending Is Back, but 2022 Weak Spots Never Went Away

Loan volumes are rising. Banks that once treated digital assets as radioactive are exploring pilot programmes. Retail platforms have relaunched borrowing products. And Bitcoin, which was blamed for distorting collateral models in 2022, is now being positioned as a liquid, mark-to-market asset that traditional lenders can finally work with.

Supporters describe this as a sign of maturity. The reality is more complicated. Crypto’s return to the credit market reflects renewed demand, rising valuations and clearer regulatory signals, but the structural weaknesses that toppled lenders in the last cycle have not disappeared. The market has rebuilt far faster than the safeguards around it.

Crypto collateralised loans reached $44.25bn at the end of Q2 2025, according to Galaxy Digital’s lending report, a 342% jump from the 2023 lows. Coinbase says it has originated $1bn in onchain loans. Crypto.com has launched a retail product. JPMorgan is preparing to allow institutions to borrow against digital assets, a significant change in tone for a bank known for its caution. The momentum is obvious. Whether the market is fundamentally safer is far less clear.

A collapsed market returns with new confidence

The last cycle ended with some of the most dramatic failures in modern finance. Platforms offered double-digit yields, claimed to be transparent, and collapsed under the weight of undercollateralised loans, opaque balance sheets and circular leverage. The fallout is still being litigated. A detailed post-mortem of Celsius documents this in detail.

The firms that survived have rebuilt with stricter practices. Maple Finance has abandoned undercollateralised lending and now focuses on overcollateralised institutional loans. Ledn tightened liquidation parameters. Credit conditions across the sector are materially tighter than in 2021 and early 2022.

But rising asset prices and steady institutional adoption have reopened demand for collateralised borrowing. 55% of hedge funds now hold some crypto exposure, according to a Reuters survey. Total crypto market value has climbed above $3.3tn, based on CoinGecko data.

ETFs are a major driver. As flows increase, private banks are being asked to treat Bitcoin ETF positions as collateral within wealth portfolios. Josip Rupena, CEO of Milo, said simply, “Their customers are asking for it.” This pressure is pushing traditional institutions back toward a market they had just exited.

Why banks suddenly care about Bitcoin collateral

For lenders, Bitcoin has several mechanical advantages. It is liquid, it trades continuously and its value is instantly observable. That is attractive compared with property, where collateral is slow to value and even slower to recover.

“With Bitcoin, if you default on your loan, just press a button,” said Mauricio Di Bartholomeo, co-founder of Ledn. “It is mark to market every minute.”

The yields are also higher than traditional lending. A Bitcoin-backed loan can return 8% to 12%, compared with around 6% for a US mortgage. In a competitive credit environment, that spread is hard to ignore.

Di Bartholomeo believes this dynamic is temporary. He argues that banks are mispricing the risk and that rates will fall as more institutions enter. He predicts a point where borrowing against Bitcoin becomes cheaper and more efficient than borrowing against a house.

“In many ways, it is a defensive move,” he said. “If banks do not pay attention to this, it will eat into the rest of their business.” This argument makes sense commercially. It also exposes how quickly the memory of 2022 has faded.

A regulatory landscape that encourages growth and caution at the same time

Regulation has tilted toward engagement rather than restriction. The GENIUS Act created a federal framework for stablecoins. The FHFA ordered Fannie Mae and Freddie Mac to incorporate crypto holdings into mortgage risk assessments.
These are small steps but symbolically important.

Basel III rules, however, still make it expensive for banks to hold crypto-backed loans. This is why JPMorgan’s pilot is aimed at institutions rather than retail clients. Regulatory capital remains the bottleneck.

Goldman Sachs was already experimenting with Bitcoin collateral in 2022, but pulled back as the sector collapsed. The interest is now returning, but the same constraints apply.

This environment creates a contradiction. Policy signals say “engage carefully.” Market signals say “demand is rising.” Banks are responding to both, but the frameworks that would make the activity safe at scale are still developing.

New participants, old risks

Industry figures insist the market is more disciplined. There is far less undercollateralised lending, margin rules are tighter and lenders have shifted toward established assets like Bitcoin. Credit contagion is more complex to trigger.

Even so, early warning signs are emerging. Di Bartholomeo says he sees “glimpses of the same issues we saw in 2022,” including aggressive rates and yield promises that “may not be sustainable.” Rupena points to new entrants that present themselves as peer-to-peer platforms while avoiding KYC and disclosure requirements.

“These are centralised lenders trying to masquerade as peer to peer,” he said. “When you remove regulatory requirements, anything is possible. And if you are not truly decentralized, you cannot rely on the code because a human sits in between.”

This hybrid model is exactly what led to hidden liabilities and undisclosed risk concentrations in the last cycle. The market insists the problems are isolated. History suggests they rarely stay that way. Galaxy Digital’s Q2 leverage report makes the vulnerability clear. The sector is growing faster than its guardrails.

Where the market goes next

Crypto lending remains tiny compared with traditional secured credit. Outstanding loans total around $26bn globally. By comparison, US mortgage debt alone exceeds $12tn. But growth can be fast in markets where collateral revalues overnight.

Maple’s Powell expects crypto lending to at least double in the next year. He anticipates the arrival of onchain, Bitcoin-backed mortgages and securitized loan portfolios that rating agencies could eventually assess.

“The financialisation of Bitcoin will continue,” he said. As more companies hold Bitcoin on their balance sheets, they create “more collateral to lend against to a greater number of parties.”

This growth brings opportunity. It also brings systemic risk. Bitcoin trades twenty-four hours a day. Stress events unfold in minutes, not months. Liquidation cascades move faster than any existing banking infrastructure. Custody, monitoring and risk modelling are materially more complex than with traditional assets.

“You have to be able to custody BTC and manage twenty-four-seven liquidation,” Powell said. “It is very different from traditional lending.”

That difference is the core question. Crypto lenders argue that they have learned from past failures. Banks say that customer demand justifies re-entering the market. Regulators argue that the frameworks are improving. All of them might be right. Or all of them might be underestimating the volatility that underpins the entire system.

Crypto lending’s return is not just a sign of renewed confidence. It is a test of whether the sector’s reforms are fundamental or cosmetic. If this cycle is built on stronger foundations, the market will absorb future shocks. If it is not, the next wave of failures will be larger, faster and more interconnected than the last.