Borrowing Instead of Selling: How Collateral Rotation Reveals a Structural Shift in Crypto Credit

What Rose Was Borrowing Frequency, Not Selling

CryptoQuant's September 2 research draws on usage data from crypto lender CoinRabbit to compare borrower behavior between the 2025 bull market and the 2026 bear market. The sharpest change appears in borrowing frequency. Average loans per retail user climbed from 30.8 to 53.5, a 74% increase, while high-net-worth individuals went from 16.5 to 19.4, up 18%. The share of repeat borrowers rose from 61.9% to 65.1%. That borrowing intensified precisely as prices fell may seem counterintuitive. But once you assume holders are unwilling to part with underwater assets at depressed prices, collateralized funding becomes a rational substitute for disposal. Notably, the interval between successive loans among retail borrowers roughly doubled, from 11 days to 21 days, suggesting a shift away from rapid turnover toward maintaining borrowing positions over longer horizons.

The Collateral Mix Turned Over

The change in collateral composition is more telling still. Bitcoin's share of high-net-worth collateral fell by roughly half, from 57.8% to 30.5%. Rising in its place was the privacy coin Zcash (ZEC), which moved from outside the top ten to third position at 24.2%. Monero (XMR), Chainlink (LINK) and Cardano (ADA) also gained share. The backdrop is ZEC's own price appreciation: from roughly $50 in September 2025 to about $800 at the time of the report, and past $1,000 on September 4, lifting its market capitalization to around $17 billion and briefly into the top ten by market value. Among retail borrowers, XRP remained the leading collateral asset, followed by Bitcoin and Ethereum, with altcoins such as BNB, KAS and VELO newly entering the top ten in 2026. The widening range of assets accepted as collateral is itself a measure of this market's maturation.

The Twist: More Loans, Smaller Market

It would be premature, however, to read this as market expansion. Galaxy Research puts outstanding crypto-collateralized loans at $56.16 billion in the second quarter of 2026, down 16.78% quarter over quarter and 40.13% below the third-quarter 2025 peak of $78.69 billion. DeFi lending fell 27.61% to $20.43 billion and CeFi lending fell 9.62% to $22.98 billion, putting CeFi ahead of DeFi for the first time since the third quarter of 2023. The industry as a whole is clearly deleveraging. Placing CoinRabbit's rising loan counts alongside shrinking aggregate balances suggests that individual loan sizes are falling and that smaller, more practical borrowings for living expenses or tax payments are accumulating in number. The dominant use case is shifting from leverage expansion toward bridge liquidity extracted without relinquishing the underlying asset.

Reading It Against Japan: A Double Barrier of Tax and Licensing

This pattern applies with particular force in Japan. Gains on crypto disposals remain classified as miscellaneous income subject to comprehensive taxation at rates reaching roughly 55%. Pledging assets as collateral, by contrast, is generally not a taxable event. The larger the unrealized gain, the stronger the economic logic of borrowing rather than selling. The FY2026 tax reform legislated a 20% separate self-assessment tax on "specified crypto assets," but its start date is set as January 1 of the year following the effective date of the amended Financial Instruments and Exchange Act, with January 2028 currently seen as most likely. Transactions through at least 2027 should remain under the existing comprehensive regime, and this transitional window is precisely when demand for collateralized lending peaks. Supply-side constraints, however, are severe. Lending yen against crypto collateral in Japan requires a money lending business registration, and providers are few — Fintertech, a joint venture of Daiwa Securities Group and Credit Saison, offers its Digital Asset Backed Loan among them. Eligible collateral is centered on Bitcoin and Ethereum; the multi-asset diversification observed abroad has not materialized domestically. The 2026 FIEA amendment bill positions crypto margin trading as an ancillary business of registered operators and is expected to clarify its relationship with money lending regulation, though whether collateralized lending itself falls within the same framework is a separate question. Japanese investors thus sit in an asymmetry: stronger motivation than their overseas counterparts to borrow rather than sell, and fewer domestic services able to meet it.

Business Development Insights

1. The tax transition period is the demand peak for collateralized lending. With separate taxation most likely beginning in January 2028, roughly eighteen months remain in which selling triggers up to 55% tax while borrowing triggers none. For Japanese financial institutions, this time-limited distortion is the strongest available tailwind for customer acquisition in crypto-backed lending. The corollary is that once the rate gap narrows, the same pitch stops working — so value beyond tax deferral (speed of execution, quality of collateral management, integration with real estate or business financing) must be designed in parallel.
2. Collateral eligibility design is becoming a competitive axis. Overseas, ZEC now accounts for 24.2% of high-net-worth collateral, and assets such as BNB and KAS have entered the retail top ten. Broadening the accepted collateral set directly expands the addressable customer base. Yet privacy coins are not permitted for handling by registered operators in Japan and collide directly with AML/CFT requirements. How far collateral eligibility can be extended is determined not only by volatility risk management but by the sophistication of compliance design — and that is where differentiation is available.
3. The split between money lending and crypto exchange licenses is the bottleneck. In Japan, the entity that custodies and trades crypto assets and the entity that lends yen against them require separate registrations, making it difficult for a single firm to serve the customer end to end. That fragmentation creates business opportunity in partnership structures combining exchange operators, lenders and trust banks. As SBI VC Trade's launch of JPYSC yen-stablecoin lending at an initial 3% annual rate illustrates, anchoring on yen-denominated digital assets opens further room to connect credit provision with settlement.

Sources

CoinPost, "Crypto-collateralized lending rises in bear market as an alternative to selling — CryptoQuant," September 4, 2026 https://coinpost.jp/?p=735521 CryptoQuant, "Why Whales Don't Sell: Crypto Lending Across the Cycle | Supported By CoinRabbit," September 2, 2026 https://cryptoquant.com/insights/research/6a98359cfad59d3c42e00f86-02-September-2026-Why-Whales-Dont-Sell-Crypto-Lending-Across-the-Cycle-Supported Siam Blockchain (reproducing the full text of CryptoQuant's official X post), September 4, 2026 https://siamblockchain.com/2026/09/04/cryptoquant-highlights-a-surge-in-crypto-backed-borrowing-during-the-bear-market-and-reveals-why-investors-are-flocking-to-this-practice/ Value The Markets, "Crypto lending fell in Q2 2026 as DeFi lost share" (secondary reporting of Galaxy Research data) https://www.valuethemarkets.com/cryptocurrency/news/crypto-lending-fell-sharply-in-q2-as-defi-lost-ground-to-cefi CoinDesk, "Zcash Jumps 20% to Landmark $1,000 Level," September 4, 2026 https://www.coindesk.com/markets/2026/09/04/zcash-jumps-20-to-landmark-usd1-000-level-as-short-sellers-lose-usd34-million So & Sato Law Offices, "Overview and Practical Implications of the 2026 FIEA Amendment Bill on Crypto Asset Regulation" https://innovationlaw.jp/crypto-fiea-amendment-2026/ Daiwa Institute of Research, "20% Separate Self-Assessment Taxation to Be Introduced for Crypto Asset Transactions," February 6, 2026 https://www.dir.co.jp/report/research/law-research/tax/20260206_025575.html Fintertech, "Digital Asset Backed Loan" https://dabl.fintertech.jp/ The Arabian Post, "CoinRabbit receives 2026 crypto lending award" https://thearabianpost.com/coinrabbit-receives-2026-crypto-lending-award/