Crypto Loans Explained: LTV, Liquidation, and Staying Safe
Crypto-backed loans let you borrow cash against your coins without selling them — but the same volatility that makes crypto attractive can trigger a liquidation that sells your collateral at the worst possible moment. This guide explains how these loans work, what LTV and liquidation price really mean, and how to borrow with a safety margin wide enough to survive a downturn.
How a Crypto-Backed Loan Works
Instead of selling your crypto, you deposit it as collateral and borrow against it — usually stablecoins or cash. You keep exposure to the collateral's upside, avoid a taxable sale, and get liquidity to spend or reinvest. In return you pay interest, and you accept the risk that if your collateral falls too far in value, the lender will sell it to recover the loan. That forced sale is called liquidation, and avoiding it is the whole game.
What Is LTV?
LTV, or loan-to-value, is your loan size divided by the value of your collateral, expressed as a percentage. Borrow $25,000 against $60,000 of Bitcoin and your LTV is about 42%. Platforms set two key numbers:
- Maximum LTV — the most you can borrow at the outset (often 50%).
- Liquidation LTV — the level at which your position is force-closed (often 75–85%).
Your LTV rises when your collateral falls in price (or as interest accrues). When it reaches the liquidation LTV, the platform sells enough collateral to repay the loan.
How the Liquidation Price Is Calculated
Liquidation happens when your loan equals the liquidation LTV of your collateral value. Rearranging that gives a simple formula:
Liquidation price = loan amount ÷ (collateral quantity × liquidation LTV)
Post 1 BTC worth $60,000, borrow $25,000, with an 80% liquidation LTV: liquidation price = 25,000 ÷ (1 × 0.80) = $31,250. Bitcoin would have to fall about 48% before you are liquidated — a comfortable buffer. The Crypto Loan Calculator computes this instantly, along with your current LTV and the price-drop buffer.
How Loan Size Changes Your Risk
The single biggest factor in your safety is how much you borrow. Here is the same $60,000 BTC collateral at an 80% liquidation LTV, at different loan sizes:
| Loan | Starting LTV | Liquidation price | Price drop buffer |
|---|---|---|---|
| $15,000 | 25% | $18,750 | ~69% |
| $25,000 | 42% | $31,250 | ~48% |
| $40,000 | 67% | $50,000 | ~17% |
Borrow modestly and the price can nearly halve before you are at risk. Borrow aggressively and a routine 17% dip wipes you out. Because crypto regularly moves 20–30% in weeks, a large loan leaves almost no room for normal volatility.
How to Avoid Getting Liquidated
- Borrow at a low LTV. A conservative loan keeps a wide gap between today's price and your liquidation price.
- Match the buffer to the collateral's volatility. Volatile collateral needs more room; it can reach the liquidation price fast.
- Have a top-up plan. Decide in advance the price at which you will add collateral or repay — reacting calmly beats panicking during a crash.
- Account for interest. Interest raises your effective debt over time, nudging LTV up even if the price is flat.
- Remember the penalty. Liquidations usually carry a fee on top of selling at a bad price, so getting liquidated costs more than the collateral sold.
Borrowing to trade with the proceeds compounds the risk. If you do, size any resulting position carefully — the position sizing guide and the Position Size Calculator show how to keep per-trade risk fixed.
Frequently Asked Questions
What happens if my crypto loan gets liquidated?
The platform sells enough of your collateral to repay the loan and typically charges a liquidation penalty. You keep any leftover collateral, but you have effectively sold at a low price and paid a fee — the worst-case outcome.
Is a crypto loan better than selling?
It can be, if you want to keep exposure to your collateral and avoid a taxable sale. But it adds liquidation risk and interest cost. Whether it is worth it depends on your conviction in the collateral and how conservatively you borrow.
How do I find my liquidation price?
Enter your collateral, its price, your loan amount, and the platform's liquidation LTV into the Crypto Loan Calculator to see your liquidation price, current LTV, and how far the price can fall.
Find Your Liquidation Price
Enter your collateral, coin price, loan amount, and liquidation LTV to see your liquidation price, current LTV, and price-drop buffer.
Open the Crypto Loan Calculator