Bitcoin-Backed Loans: Transforming a Crash into a Strategic Exit | Opinion

The Bitcoin crash in October served as a real-world test, highlighting how effective financial infrastructure can enhance risk management.

On October 10, 2025, Bitcoin's price dramatically dropped from approximately $122,000 to $102,000 in under an hour. This incident marked one of the largest liquidation events in the history of cryptocurrency, eliminating over $19 billion in leveraged positions on various exchanges. Many traders watched in shock as BTC briefly fell below $100K before recovering hours later.

While chaos reigned for some, the event highlighted a significant aspect of how Bitcoin-backed lending can function effectively as both a financing tool and a method of risk management.

Understanding the Financing Dilemma: Sell or Borrow?

Consider a scenario where you manage a company holding a BTC treasury valued at $1 million. This treasury was established earlier in the year as part of your overall financial strategy, with Bitcoin purchased in April 2025 at about $80,000 per coin. You regard it as both a valuable asset and a means to diversify cash reserves. Although you have a long-term positive outlook on Bitcoin, you still require liquidity for monthly operational expenses such as payroll, marketing, and product development.

At this point, you face a common challenge: how to manage funding for your operations most efficiently. Essentially, you have two options:

Option 1: Monthly BTC Sales

You might choose to sell a portion of your BTC each month. This strategy provides immediate cash but decreases your future exposure and potential gains. If you sold BTC monthly at the following prices:

Month | BTC Price ($)
---|---
May | 95,000
June | 104,000
July | 107,000
August | 108,000
September | 114,000

This method offers short-term funding but requires letting go of appreciating assets.

Option 2: Borrow Against Your BTC Treasury

Alternatively, you could use your BTC as collateral to borrow Tether or fiat through lending platforms. By slightly increasing your loan each month, you would manage to raise your liquidation price—the level at which BTC would automatically be sold to repay the loan.

This price essentially functions as a stop-loss. If BTC drops below this threshold, your collateral gets liquidated automatically. This approach lets you maintain your investment while utilizing your BTC holdings for operational cash, effectively converting long-term confidence into immediate liquidity.

Analyzing the Crash: What Happened

One trader implemented this exact strategy. By early October, their BTC-backed loan had a liquidation point of about $115,000. When the flash crash occurred on October 10, the automatic liquidation was triggered near this level.

Typically, liquidation might seem concerning. However, in this instance, it secured profits since the BTC was bought months earlier at $80K. The automatic sale at $115K resulted in closing the position with significant gains before the market suffered a wider decline.

This system operated precisely as designed, protecting the capital, maintaining liquidity, and turning what could have been a margin call into a calculated exit.

The Importance of Oracles: The Role of Chainlink Data

The liquidation process relied on Chainlink oracle pricing, which collates data from multiple leading exchanges to create a trustworthy market average. During the crash, some exchanges—with fewer transactions—occasionally reflected BTC prices below $100K. However, the Chainlink feed remained consistent at around $104–105K, indicating a more accurate market level.

This discrepancy is crucial. By utilizing decentralized oracle data, the system was able to prevent unnecessary liquidations that might have resulted from an individual exchange's fleeting mispricing.

This scenario illustrates how automated lending and dependable data feeds can mitigate risks, even in rapidly changing market environments.

Key Insights from the October Flash Crash

The events of October 10 underscored the significant risks associated with crypto leverage—powerful but perilous.

Remarkably, it also demonstrated that wisely structured asset-backed lending could turn market volatility into an advantage. The crash of October 2025 wasn't merely another setback; it served as a crucial real-world assessment of how effective financial infrastructure can enhance risk management capabilities.

By leveraging structured borrowing approaches, traders can navigate market fluctuations more adeptly, maximizing their investment potentials while managing inherent risks.