Crypto markets are once again building on borrowed money, reviving the boom in borrowing that turned deadly in 2022.
Lending against digital assets has grown to record levels, and this time, the scale and the players are bigger.
Record leverage returns
According to Galaxy Digital Research provided by Bloomberg, total outstanding crypto loans reached $73.6bn in the third quarter of 2025, eclipsing the previous high of $69.4bn set in late 2021. That’s about the size of Luxembourg’s economy, or more than the combined market value of Coinbase, Robinhood and Marathon Digital, now tied up in leverage built on digital assets.
The mechanics haven’t changed. Traders borrow against Bitcoin or Ether to buy more tokens, while institutions lend against that collateral to capture yield. The dynamic inflates liquidity and confidence, until prices fall, at which point margins tighten and forced liquidations cascade through the system.
From crypto lenders to Wall Street
What has changed is who’s doing the borrowing. Major banks and funds are entering the same game once dominated by crypto-native lenders. JPMorgan plans to allow select clients to use Bitcoin and Ether as collateral for short-term loans next year, while digital-asset firms have adopted Wall Street-style structured financing to expand lending. The market is larger, more sophisticated, and more entangled with traditional finance than before.
Regulators are watching
The UK’s Financial Conduct Authority has proposed banning retail customers from using borrowed funds to buy crypto, after the share of credit-fuelled investors more than doubled between 2022 and 2023. Indeed, UK banks have begun blocking credit-card purchases of crypto. Yet institutional borrowing remains largely unregulated and often crosses jurisdictions.
Meanwhile, borrowing and leverage remain generous in crypto markets compared with traditional finance. Research by the Bank for International Settlements shows that crypto-native exchanges offer leverage of up to 125 times, compared with roughly two times on regulated futures markets. This disparity defines both the size and scope of the risk.
Collateral pressure builds
That imbalance is already being tested. Bitcoin peaked at $126,296 on 6 Oct, according to Coinbase, and has since fallen to $98,892 as of 4 Nov, a decline of more than 20% in a month. For borrowers using Bitcoin as collateral, that means their loan-to-value ratios are worsening fast, triggering margin calls and eroding equity cushions.
When the music stopped last time
The last time this leverage unwound, the damage was catastrophic. The collapse of TerraUSD and its sister token LUNA in May 2022 erased roughly $45bn in value in a week, setting off a chain reaction that felled Three Arrows Capital, the heavily leveraged hedge fund that had borrowed against its crypto holdings. Months later, the implosion of FTX exposed how recursive lending and re-hypothecated collateral had turned one firm’s losses into systemic contagion. Even Circle’s USDC, seen as a safer stablecoin, briefly lost its peg in March 2023 when $3.3bn of reserves were trapped at Silicon Valley Bank.
Bigger bets, same lesson
The industry insists that this time is different: that collateral management has improved, liquidation engines are faster, and institutional oversight will prevent contagion. But the numbers tell a familiar story. The volume of crypto debt outstanding is higher than before the last crash, leverage remains extreme, and the collateral backing it is shrinking by the week.
Three years after the last credit unwind, crypto’s lenders and borrowers are again marching in step, waving the same flag. The difference this time isn’t in the lesson; it’s in how much bigger the bet has become.
