A loan is a liquidation bet in disguise
Borrowing against crypto lets you raise cash without selling — no taxable event, you keep the upside. But the moment you take the loan, you've opened a liquidation position just like a leveraged trade. Your LTV is the loan divided by your collateral's market value; as the coin falls, that value shrinks and LTV climbs. Hit the platform's liquidation LTV and they sell your collateral to repay the loan, often at the worst possible moment. The trigger price below the result is the single number that matters: above it you're fine, at it you're sold.
The trap most borrowers miss is that interest accrues onto the balance. Even with the coin price dead flat, your loan grows month after month, nudging LTV upward until the buffer you started with quietly erodes. That's why a loan opened at a "safe" 50% LTV can drift toward liquidation on its own. Start low — a 20–35% LTV gives ordinary volatility room to breathe — and watch the safety buffer in the table, not just today's comfortable number.
Thinking of leverage instead? The mechanics rhyme: see the liquidation price calculator for perps and the safe leverage calculator for sizing. If you'd rather earn than borrow, compare staking rewards, and stress-test how deep a drawdown your collateral could face with the drawdown recovery calculator.
FAQ
What liquidation LTV should I enter? It's platform-specific. Centralized lenders (Nexo, Binance Loans) often liquidate around 80–90% LTV; DeFi protocols (Aave) set a per-asset liquidation threshold, frequently 70–83% for blue-chips. Check your provider's terms — the field defaults to 83%.
Does this include liquidation penalties? No — many platforms also charge a liquidation fee on top of selling your collateral, so your real loss is worse than the trigger implies. Treat the liquidation price as a hard line to stay well above, not a target.
Is borrowing against crypto a taxable event? Generally taking a loan isn't a sale, so in many jurisdictions it isn't immediately taxable — but a forced liquidation is a sale and can trigger tax. Rules vary by country; this isn't tax advice.