Guide · Risk and custody
Bitcoin loan rehypothecation and who holds the collateral
Bitcoin loan rehypothecation is a lender’s contractual right to re-use the bitcoin you pledge, by re-pledging, lending or selling it while your loan runs. It decides what you are left holding if the lender fails: your coins, or a creditor’s claim. Custody models range from lender-held and re-usable to multisig you can verify onchain.
Key takeaways
- The right to re-use comes from the loan agreement. Celsius’s retail loan terms, quoted by the court, let it “pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use” pledged assets.
- The Celsius Earn ruling of 4 January 2023 covered about 600,000 accounts and about US$4.2 billion. Those deposits had become Celsius’s property under its terms of use.
- Borrowers were decided separately, and later. On 9 November 2023 the court held that collateral posted by objecting retail borrowers was estate property.
- “No rehypothecation” is not one standard. Ledn publishes that custodied collateral “may only be re-posted” to a funding partner or vehicle: a bounded limit, not none.
- One model lets you check the collateral yourself. In a 2-of-3 multisig you hold a key and watch the address onchain; otherwise you see what the lender reports.
General information, not advice. This guide describes custody and rehypothecation in general terms, and records what named firms and court documents published as read on 19 September 2026. It is not an offer to lend or to arrange a loan, and it is not investment, legal or tax advice. Naming a firm is not a recommendation and implies no relationship with Crypto Loans HQ. Terms are set only by the lender. How we are paid.
What rehypothecation means for your bitcoin
When you take a loan against bitcoin you hypothecate the coins: you pledge them as security while keeping ownership. Rehypothecation is the further step in which the party holding that security re-uses it for its own account, by pledging it again to its own funder, lending it on, or selling it.
Nothing about a crypto-backed loan requires this. The right exists only where the agreement creates it, which is why the custody and re-use clauses are the two paragraphs worth reading twice. Every other term is about what a fall in price does to you; these two are about what a failure at the lender does to you.
One label needs fixing before going further. On this page, and across this site, crypto lending means borrowing cash or stablecoins against crypto you keep. It never means lending crypto out to a platform in return for interest, which is a different transaction with a different risk.
Why one clause decides what a failure costs you
If the collateral sits in an account in your name, or an address you can co-sign, the coins stay identifiable through a lender’s insolvency. If it has been re-pledged into the lender’s funding chain or lent onward, it may not be, and the question becomes whether you own an asset or hold a claim that ranks behind secured creditors.
Celsius said as much in its own documents: Terms of Use Version 8, quoted in the court’s opinion, warned that in a bankruptcy “any Eligible Digital Assets used in the Earn Service or as collateral under the Borrow Service may not be recoverable”, leaving customers with “rights as a creditor”. The clause is a tax question too: under HMRC’s guidance on decentralized finance, a lender able to deal with your coins as it wishes points towards a disposal when you post them, as are crypto loans taxable sets out.
What the Celsius record shows
Celsius Network filed for Chapter 11 on 13 July 2022 in the Southern District of New York, case number 22-10964 (MG). Two opinions from that case are the clearest published record of how platform terms are read when the platform fails.
On 4 January 2023, Chief Judge Martin Glenn held that under Celsius’s “unambiguous Terms of Use” assets deposited into the Earn Program had become Celsius’s property, and that assets left in Earn Accounts on the petition date “became property of the Debtors’ bankruptcy estates”. The opinion records about 600,000 Earn accounts holding about US$4.2 billion as of 10 July 2022, and expressly did not decide ownership in the Custody Program, Withhold Accounts or Borrow Program.
Borrowers waited another ten months. On 9 November 2023 the court found that digital assets transferred to Celsius as collateral under Version 7 of the retail loan terms, by borrowers who objected to the plan, “were property of the Debtors’ Estates”. The loan terms quoted in that opinion gave Celsius the right “to pledge, re-pledge, hypothecate, rehypothecate, sell, lend, or otherwise transfer or use any amount of such Digital Assets”, with “all attendant rights of ownership”. That sentence is the reason this page exists.
Under the plan’s Retail Borrower Settlement, borrowers could elect to repay their advances in exchange for an equivalent amount of bitcoin or ether, and distributions began on 31 January 2024. Timing matters as much as outcome: a borrower who wanted the coins back waited sixteen months for the ruling, eighteen and a half for the first distributions.
BlockFi, Genesis and Voyager
BlockFi filed for Chapter 11 on 28 November 2022, in cases jointly administered in the District of New Jersey under number 22-19361 (MBK). On 14 February 2022 the Securities and Exchange Commission had already charged BlockFi Lending LLC over its interest accounts, finding that BlockFi “made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity”. It paid US$50 million to the SEC and US$50 million to states.
Genesis Global Holdco and affiliates, including Genesis Global Capital, filed Chapter 11 on 19 January 2023, number 23-10063 (SHL). Genesis was an institutional lender: counterparty failure is not a retail-only event.
Voyager Digital Holdings filed in July 2022, number 22-10943 (MEW). The Vermont Department of Financial Regulation noted on 12 July 2022 that “Voyager’s bankruptcy filings state that the company does not maintain a separate cryptocurrency wallet for each customer; instead, all cryptocurrency assets are combined into a commingled wallet”. Commingling is the operational cousin of rehypothecation: even without re-use, pooled coins are harder to trace to one customer.
What happened to each firm’s loan collateral specifically is not in the records we read, so this page does not assert it. In all four, outcomes turned on the contract and on segregation.
Five custody models
Lenders publish four arrangements for holding bitcoin collateral; Celsius’s terms document the fifth.
| Model | Who can move the collateral | Re-use, as published | What you can verify yourself |
|---|---|---|---|
| Lender-held, re-use permitted | The lender, alone | Pledging, re-pledging, lending and sale permitted | Only what the lender reports |
| Custodian, re-use limited by contract | The lender, through its custodian | Re-posting to a named funding partner or vehicle; onward lending excluded | The re-use clause; proof-of-reserves attestations |
| Third-party custodian, segregated | The custodian, on the lender’s instruction | Stated not to occur | The custodian’s name; whether the account is segregated |
| 2-of-3 multisig with a key agent | Any two of borrower, lender and key agent | Stated not to occur; nobody moves the coins alone | The collateral address, onchain, at any time |
| Wrapped or tokenized collateral | A smart contract, or the token’s issuer | Governed by the protocol, not a custody clause | The contract; the issuer or bridge |
| From each firm’s own pages, accessed 19 September 2026, and In re Celsius Network LLC, No. 22-10964 (MG). None of the five removes price risk. Custody statements are the firms’ own descriptions, not legal conclusions, and this is not a ranking. | |||
A custodian’s name answers less than it appears to. Ask whose name the account is in, and what the lender may instruct the custodian to do besides hold the coins or sell them on a default. Arch calls its collateral bankruptcy-remote and structurally separated from its balance sheet, Ledn describes ring-fenced structures, Unchained a segregated sub-trust: published descriptions, not court conclusions.
Definition
Qualified custodian. A defined term in the United States, under the Securities and Exchange Commission’s custody rule for investment advisers: an insured bank, a registered broker-dealer, a registered futures commission merchant within limits, or a foreign institution that segregates client assets. It says who holds the coins, not what the lender may instruct them to do.
What lenders publish about re-use
The table records the words each firm uses on its own pages, accessed on 19 September 2026. It is not a ranking, and naming a firm implies no relationship with Crypto Loans HQ (see how we are paid).
| Lender | Wording used about custody and re-use |
|---|---|
| Arch | “segregated cold storage with Anchorage Digital”, bankruptcy-remote and “never rehypothecated” |
| Figure | Held by “our qualified custodian” and “will never be rehypothecated” |
| Galaxy | GalaxyOne line of credit, 25 August 2026: “Pledged collateral is not rehypothecated.” |
| Ledn (custodied loans) | Collateral “may only be re-posted to an institutional USD funding partner or a Ledn-sponsored financing vehicle”; no party has “the right to lend it out for yield” |
| Milo | “stored with qualified custodians”, named as Coinbase and BitGo; “no rehypothecation” |
| SALT | “held with qualified institutional custodians”, and “not lent out, not rehypothecated, not used to generate yield” |
| Unchained | 2-of-3 multisignature quorum (borrower, Unchained, key agent) in a segregated sub-trust: “Unchained does NOT rehypothecate, or lend to other people/entities, any bitcoin backing an Unchained loan.” |
| Xapo Bank | Bank-held collateral for a US dollar loan: “No rehypothecation of Bitcoin.” |
| Alphabetical. Each quotation is from the firm’s own page, accessed 19 September 2026 and linked below. Descriptions lenders published as of September 2026; terms are set only by the lender. | |
Unchained’s commercial loans page separately states that Unchained and Fortis Bank each hold one key and the borrowing company holds a key, and that the collateral “cannot be moved or rehypothecated by Unchained, Fortis Bank, or your company acting alone”. That page gives no quorum, so the two facts are kept apart.
When “no rehypothecation” still allows re-use
The phrase looks binary and is not. Ledn’s wording for custodied loans is the clearest worked example, because it says out loud what a shorter promise would hide: collateral “may only be re-posted to an institutional USD funding partner or a Ledn-sponsored financing vehicle, where it is legally ring-fenced or held in bankruptcy-remote structures”, and neither Ledn, the funding partner nor the vehicle has the right to lend it out.
That is a limit on re-use, published and bounded, not an absence of it. Next to a bare “we never rehypothecate” it is arguably the more useful disclosure, because you can see the perimeter. It raises the right questions: re-posted to whom, in what structure, and what if that counterparty fails rather than the lender?
Two related descriptions deserve the same treatment. Bankruptcy-remote and ring-fenced are structural claims about arrangements a firm has put in place, and most have never been tested in court. Proof of reserves shows assets at a point in time on one side of the balance sheet: it says nothing about liabilities, and it is not an audit.
Questions to ask before you sign
Take the agreement, not the product page, to your lawyer.
- May the lender pledge, re-pledge, lend or sell the collateral before a default? If not, where does the agreement say so?
- Who holds the coins, in whose name is the account, and is it segregated from the lender’s own assets?
- If the collateral may be re-posted, to which type of counterparty, and in what structure?
- Does the bitcoin stay bitcoin, or become a wrapped or tokenized form that adds an issuer, a bridge or a smart contract?
- Can you see a collateral address onchain, or do you rely on the lender’s reporting?
- Is bankruptcy remoteness an obligation in the document, or a line on a web page?
- On a default, what may the lender sell, in what order, and who chooses the venue and the price feed?
- What happens to the collateral if the custodian, rather than the lender, fails?
- In an insolvency, what does the agreement say you hold: an asset, or a claim?
Starting loan-to-value (LTV), the margin-call level and the cure window sit alongside these, in bitcoin loan margin calls; the loan as a whole is in how do crypto loans work.
Is crypto lending safe?
The question is the wrong shape. Crypto lending is not one product: a loan in a 2-of-3 multisig from a lender that cannot move the coins alone, and a loan under terms permitting sale of the collateral, are different transactions wearing the same name. No structure removes the two risks that matter. The first is price: a fall pushes the LTV up, and every lender above publishes a level at which it sells. The second is the counterparty, and four platforms failed in 2022 and 2023.
A custody model removes neither; it decides how much of the second you can see and check. What a borrower controls is the size of the loan against the collateral, the terms accepted, and whether cash or coin is ready to answer a margin call. If those three are not comfortable at a 50% fall in the bitcoin price, the loan is too large. The alternative is in borrow against bitcoin instead of selling.
Risk
Risks to weigh before borrowing
- Counterparty and custody risk. If the terms let the lender re-use your bitcoin and it becomes insolvent, you may hold a creditor’s claim rather than coins. Celsius, BlockFi, Genesis and Voyager all filed for Chapter 11 in 2022 and 2023.
- Margin calls and forced liquidation. Custody terms do nothing about price. A fall lifts the LTV towards the liquidation level; published cure windows run to 24 or 48 hours, and some levels carry none.
- Tax on a liquidation. A forced sale is a sale of your bitcoin and is generally a taxable disposal, and terms that pass ownership may be a disposal from the start. Take advice from a qualified tax adviser.
- Operational risk at the custodian. Segregation protects against the lender’s creditors, not the custodian’s own failure, and commingled wallets make coins harder to trace.
Calls and sales are covered in bitcoin loan margin calls, lender terms in bitcoin-backed loans, and ether and ETF collateral in crypto-backed loans.
Primary sources
- In re Celsius Network LLC, No. 22-10964 (MG) (Bankr. S.D.N.Y.): Earn ownership opinion (4 January 2023); corrected opinion (9 November 2023)
- BlockFi, D.N.J. case page; SEC 2022-26; Genesis, No. 23-10063 (SHL); Vermont DFR on Voyager (12 July 2022)
- 17 CFR 275.206(4)-2, the Advisers Act custody rule (Cornell LII)
- Unchained: loan collateral, loans; Ledn; Arch, Arch FAQs; Figure FAQ; SALT; Milo; Xapo Bank; Galaxy (all accessed September 2026)
- HM Revenue and Customs: Cryptoassets Manual, CRYPTO61640
Rehypothecation and custody: frequently asked questions
What is rehypothecation in a bitcoin loan?
Rehypothecation is a lender's contractual right to re-use collateral you have pledged: to pledge it again to its own funder, to lend it on, or to sell it. The right exists only where the loan agreement creates it. It matters most in an insolvency, because re-used collateral may no longer be identifiable as yours.
Can a lender sell my bitcoin collateral while the loan is running?
Every lender can sell collateral on a liquidation, which is the point of taking security. Selling at other times needs the agreement to allow it. Celsius's retail loan terms, quoted by the bankruptcy court, allowed it to pledge, re-pledge, hypothecate, rehypothecate, sell, lend or otherwise transfer the pledged assets with all attendant rights of ownership.
Is crypto lending safe?
There is no single answer, because crypto lending is not one product. Two risks are always present: a price fall can trigger a margin call and a forced sale, and the lender can fail. The 2022 and 2023 bankruptcies turned on the contract and on segregation, not on the size of the platform.
Where to go next
For a holder weighing custody terms on a loan of US$100,000 or more, the lender-by-lender terms come next, with the enquiry process beside them.