Loan-to-value explained

LTV is outstanding principal divided by collateral market value, expressed as a percentage. Borrow 30,000 EUR against 100,000 EUR of collateral and the LTV is 30%. The numerator changes only when you borrow more or repay; the denominator changes every time the market moves, which is why the ratio drifts on its own.

Because the denominator is volatile, the same loan can sit at 30% on Monday and 45% on Friday without you doing anything. Planning a loan means planning for the denominator, not the starting number.

The initial LTV is the maximum ratio at which a new loan can be drawn. The margin-call LTV is the level at which the lender asks you to restore the buffer. The liquidation LTV is the level at which collateral is sold to protect the loan. Every lender publishes all three, and the gaps between them are the terms that actually matter.

Compare providers on those gaps, not on the headline maximum. A lender advertising a high initial LTV with a liquidation level only a few points above it gives you far less room than one with a lower initial ratio and a wide corridor.

Take 100,000 EUR of Bitcoin collateral, a 40,000 EUR loan (40% initial LTV) and a liquidation level of 80%. Liquidation happens when 40,000 divided by the collateral value reaches 0.8 — that is, when the collateral is worth 50,000 EUR. The price can halve before liquidation.

Now take the same collateral with a 65,000 EUR loan (65% initial). Liquidation arrives when the collateral is worth 81,250 EUR — a fall of under 19%. In a market that has repeatedly moved more than that in a fortnight, the second loan is a different product from the first, even though both look like 'a loan against Bitcoin'.

Collateral quality is priced. Stablecoins carry the tightest bands because their value barely moves. Bitcoin and Ethereum sit in the middle, with deep liquidity to sell into if a liquidation is ever needed. Smaller tokens attract conservative bands or are refused outright, because a forced sale would move the market against the position.

Tokenised gold sits closer to the stablecoin end for volatility while behaving like a commodity — which is why it is a common collateral choice for borrowers who want a low-drama loan rather than leveraged upside.

Work backwards from the drawdown you want to survive, not forwards from the cash you want today. Decide the peak-to-trough fall your collateral has plausibly experienced, then choose a starting LTV where that fall still leaves you above the margin-call level.

Keep repayment capacity in reserve. A margin call answered within hours from a stablecoin balance you already hold is an administrative event; the same call answered by scrambling to sell assets is how a manageable position becomes a loss.