A crypto-backed loan lets you borrow dollars against your crypto without selling it. If the price falls far enough, the lender can sell your collateral to cover the loan. Loan-to-value (LTV) tells you how far that is.
The mechanics
You deposit crypto as collateral with a lender and receive dollars. You keep ownership of the crypto, so price gains stay yours, and repaying the loan returns the collateral, as Arch Lending describes it.
LTV in one line
LTV is the loan amount divided by the collateral value. Salt gives the simple case: $10,000 of Bitcoin at 50% LTV supports a $5,000 loan. Arch Lending caps its LTV at 60% and suggests borrowing at 40% to 50% to leave a buffer.
What happens when the price falls
Take that $5,000 loan against $10,000 of collateral:
| Price drop | Collateral value | LTV on the $5,000 loan |
|---|---|---|
| 0% | $10,000 | 50% |
| 20% | $8,000 | 62.5% |
| 40% | $6,000 | 83.3% |
| 50% | $5,000 | 100% |
This is arithmetic to show the mechanism, not a forecast.
Margin calls and liquidation
When LTV rises past a threshold the lender sets, you get a margin call: add collateral or repay part of the loan. If you do nothing, the lender can sell some or all of the collateral.
Thresholds differ by lender and sit in the loan agreement. Ask before you deposit.
Six questions to ask before you deposit
- What LTV do I start at?
- At what LTV is the margin call?
- At what LTV is my collateral sold?
- How long do I have to respond?
- Who holds my collateral, and can they lend it out?
- What are the interest rate and fees, and can I repay early?
Where Nexo fits
Crypto credit-line services such as Nexo offer borrowing against crypto. Check availability, LTV limits and rates for your country first.
Some links on this site are affiliate links; we may earn a commission at no cost to you. Educational content only, not financial advice. Crypto-backed loans can cost you your collateral.