The market moves fast. Make sure your loan stays safe.
Watching the price of Bitcoin fluctuate can be stressful, especially when you have a loan secured against it. While Bitcoin-backed loans are a powerful tool to access cash without selling your Bitcoin, they do require a bit of "care and feeding" when the market starts moving.
If the price of Bitcoin drops significantly, your Loan-to-Value (LTV) ratio goes up. LTV is a simple calculation that compares the size of your loan to the value of the Bitcoin you hold as security. If it goes up too high, it can trigger a liquidation, where your Bitcoin is automatically sold to pay back the loan.
However, liquidation is almost always preventable. Here are 5 simple things you can consider to stay safe, keep your Bitcoin, and ride out the volatility.
1. Don't "max out" your borrowing power
Just because you can borrow up to 40% of your Bitcoin’s value doesn't always mean you should.
The Risk: If you borrow the maximum amount possible, you have less "cushion" if the price drops. Even one dip could push your LTV into the danger zone.
The Tip: Consider leaving yourself a buffer. Borrowing a smaller percentage (like 20% or 30%) gives the market room to breathe without triggering any alarms.
2. Know your safety numbers
You can’t manage what you don’t measure. For Xapo Bank’s BTC loans, there are three specific numbers you should memorise:
50% LTV (The Warning Zone): This is when we notify you. It’s your early warning system telling you to take action.
65% LTV (The Danger Zone): This is typically where a "Margin Call" happens. It’s when it’s time for you to step in and take quick action before things tighten further.
80% LTV (The Red Zone): This is the liquidation threshold. If your loan hits this level, the system will automatically sell your collateral to pay down the debt.
The Tip: Check your LTV regularly in the app. If you see it creeping toward 60% and beyond, don't wait, act early.
3. Keep "spare ammo" on the side
The best defence against a margin call is having a backup plan ready before you need it.
The Risk: If you receive a margin call but all your assets are already locked up in the loan or illiquid, you might be forced to watch a liquidation happen.
The Tip: Keep some spare Bitcoin in your account that isn't locked as collateral. Think of this as your "emergency fund." If the market dips, you can instantly add this to your collateral to lower your LTV and make your loan healthy again.
4. Turn on notifications (and watch them!)
In crypto, timing is everything. A market dip can happen while you sleep or while you’re at dinner.
The Risk: Missing an email or app push notification from Xapo Bank could mean missing your window of opportunity to fix your loan health.
The Tip: Ensure your email and app push notifications are enabled for Xapo Bank and not muted. If you see a message from us regarding your loan, open it immediately. These messages are sent to protect you.
5. Act fast, don't "wait and see"
When the market is dropping, it’s tempting to think, "It will bounce back tomorrow, I'll just wait."
The Risk: Hope is not a strategy. If the drop continues, you could hit the 80% liquidation threshold very quickly.
The Tip: If you are close to a margin call, it is safer to top up your collateral now to restore your peace of mind. It’s better to be over-cautious than to lose your Bitcoin to a forced sale.
Need to check your loan health? Open your Xapo Bank app today and navigate to the Loans section to see your current LTV ratio. If you're sitting above 50%, consider topping up your collateral now to give yourself peace of mind.
