Crypto Loans Unveiled: Debunking the Biggest Myths About Crypto Lending

"I wanted to get some liquidity, but I didn’t want to sell my bitcoin and trigger a taxable event."— This is a common dilemma among crypto holders.

Crypto lending is often misunderstood, plagued by misconceptions about its risks, utility, and long-term viability. 

Misinformation, market volatility, and evolving regulations have led many to dismiss crypto loans as unsafe or unnecessary. 

But the truth is, crypto lending is easing access to liquidity in ways traditional finance can’t match.

Let’s clear the air and debunk the biggest myths about crypto loans and investing.

Common Misconceptions About Crypto Loans

1. “Crypto Loans Are Riskier Than Traditional Loans”

Reality: Risk depends on the platform, collateralization, and lender policies.

Traditional loans rely on credit scores and lengthy approval processes. 

Crypto loans, on the other hand, use over-collateralization to reduce default risks. For instance, depending on the cryptocurrency used as a collateral, a borrower might need to deposit $10,000 worth of bitcoin to borrow $5,000—ensuring lenders are protected.

Comparison with traditional lending risks:

• Traditional loans depend on creditworthiness — If you default on a traditional loan, your credit score drops, debt collectors may pursue you, and if it’s collateralized, assets like your home or car can be seized.

• Crypto loans use collateral—if prices drop below a certain level, liquidation can occur. Defaulting on a crypto loan leads to automatic liquidation of your crypto holdings, preventing legal battles but exposing you to potential sell-offs during market dips.

• The real risk? Choosing the wrong platform. Proper due diligence mitigates this.

2. “You Need to Sell Crypto to Access Liquidity”

Reality: Crypto-backed loans allow users to retain their assets while accessing capital.

Imagine holding bitcoin at $100,000 but needing cash. Selling triggers capital gains tax and forfeits potential future growth. A crypto loan lets you borrow cash while keeping exposure to bitcoin’s appreciation.

Example: A long-term Ethereum holder borrows against ETH to buy a rental property, avoiding capital gains tax while diversifying assets.

3. “Crypto Loans Are Only for Traders and Speculators”

Reality: Crypto loans serve businesses, long-term holders, and institutions—not just day traders.

Use cases beyond trading:

• Long-term investors: Avoid selling and paying taxes while keeping exposure to asset growth.

• Businesses: Access working capital without going through lengthy approval processes.

“Lantern has been a game-changer for me. When I needed a loan quickly for an acquisition opportunity to expand my business, I really didn’t have the time to wait for a bank to understand the opportunity or approve me. Thankfully I could use Lantern to quickly access cash against my bitcoin holdings, and close on the acquisition in less than week!”  - Lantern Customer

• Institutions: Leverage crypto holdings for strategic financial management.

Have a feeling the price of bitcoin is going to be much higher? Consider taking on a 2x loan where Lantern will lend up to 100% of your crypto holdings in order to buy more bitcoin.

4. “All Crypto Loan Platforms Are the Same”

Reality: Platforms vary in terms, security, and collateral requirements.

Not all crypto lending platforms are built the same. Some require high collateral, while others allow under-collateralized lending. Factors to consider:

• Loan-to-Value (LTV) ratio: How high of an LTV allowance does the platform go up to? For example, Lantern allows up to  50% LTV, while others are stricter.

• Security: Platforms with insurance or strong security measures reduce counterparty risk. For example, Lantern offers up to $250 million worth of insurance coverage to protect users against losses from hacks or insolvency.

• Reputation: Unlike other lenders, Lantern offers strong credibility and insurance coverage. 

Due diligence is essential. A poorly chosen platform can expose users to smart contract vulnerabilities or insolvency risks, as seen with Celsius and Voyager.

Common Misconceptions About Crypto Investing

5. “Crypto Investing Is Just Gambling”

Reality: Informed investing relies on research, strategy, and risk management.

Unlike gambling, crypto investing involves analyzing:

• Market trends: Institutional adoption, network growth, and use cases.

• Fundamentals: Tokenomics, utility, developer activity.

• Risk management: Diversification, stop-loss strategies, and portfolio balancing.

Example: Ethereum’s value surge wasn’t luck—it was driven by DeFi and NFT adoption. Investors who recognized this early positioned themselves for long-term gains. Here’s the 2025 Crypto Market Analysis Report to help give you a clear snapshot of the current crypto landscape.

6. “Crypto Is a Get-Rich-Quick Scheme”

Reality: Sustainable wealth-building requires patience and strategy.

Yes, some people made millions overnight—but many lost just as fast. 

Crypto markets follow cycles, and only those who understand the fundamentals thrive. “Crypto markets follow cycles, and only those who understand the fundamentals thrive.” 

-  Prince Jindal, Co-Founder of Lantern Finance

Key crypto investment principles:

• Avoid hype-driven FOMO investments.

• Focus on projects with strong fundamentals.

• Diversify instead of going all-in on one asset.

• Prioritize long-term strategy over short-term speculation.

• Assess token utility, team credibility, and market demand before investing.

• Manage risk with stop-loss strategies and proper portfolio allocation.

Here’s an in-depth explanation and steps to take before you make your next crypto investment decision.

7. “Regulations Will Kill Crypto Lending and Investing”

Reality: Regulations can bring legitimacy and stability to the market.

Governments aren’t looking to ban crypto; they’re working to regulate and integrate it.

• The U.S. SEC and EU MiCA (Markets in Crypto-Assets) are pushing for clear guidelines.

• Licensed platforms are gaining mainstream acceptance.

• David Sacks as the new U.S. "crypto czar" signals a more pro-crypto stance in regulatory circles.

• SAB 121 was repealed, allowing banks to account for crypto assets, paving the way for greater institutional adoption.

• Traditional financial institutions are increasingly integrating crypto services, reinforcing legitimacy and market stability.

More clear-cut custody and compliance rules could accelerate crypto’s role in mainstream finance.

Example: Singapore’s regulatory clarity has led to a surge in institutional crypto participation, proving that clear rules can encourage market growth rather than stifle it.

How to Approach Crypto Loans and Invest Wisely

• Do your research: Choose secure, transparent platforms with a strong reputation.

• Diversify wisely: Don’t overleverage or tie all capital to one asset.

• Understand tax implications: Borrowing against crypto can prevent taxable events, but rules vary by country.

Conclusion

Crypto loans aren’t a high-risk, speculative gamble—they’re a financial tool for liquidity and asset optimization. While myths persist, understanding the realities behind crypto lending and investing can help users make informed, strategic decisions.

As regulations evolve and platforms mature, crypto finance will continue integrating with traditional systems, offering innovative solutions for liquidity and wealth management. The key? Approach with knowledge, caution, and a long-term mindset.

Thinking of taking a crypto loan? Do your homework, evaluate risks, and leverage the right crypto loan platform for your needs.