Margin calls. Collateral safety. LTV. When members ask about Bitcoin-backed loans, these are the questions that come up again and again: so we put them to the people who work with them every day.
In our latest AMA, our team worked through a range of questions on how borrowing against Bitcoin works, what happens when the market moves, and where the product is heading. If you missed the session, here is what was covered. The full recording is available on our channel.
How a Bitcoin-backed loan works, start to finish
The process has four steps, and it all begins in your BTC Vault.
First, you deposit your Bitcoin collateral into a secure BTC Vault within your Xapo account.
Second comes the drawdown: your funds arrive in your USD account, typically in under a minute.
Third, you manage the loan — tracking your LTV, outstanding balance, and repayment status in real time in the app. This stage also includes loan upsizing, a feature many members asked about: you can borrow more USD through the same active loan, up to your pre-approved limit, as long as your LTV stays healthy.
Fourth is repayment and release. There is no set payment schedule. You can repay any time during the term, in USD or in Bitcoin, as long as the loan is fully repaid by the end of the period. There are no penalties for repaying early.
One important detail: while your loan is active, the collateral in the Vault cannot be withdrawn until the loan is fully repaid. You keep your Bitcoin and access liquidity without selling it, but the collateral stays put, doing the one job it has: securing your loan.
LTV, margin calls, and the numbers to memorise
The maximum LTV (loan-to-value) currently available is 40%. For every dollar of Bitcoin you hold as collateral, you can borrow up to 40 cents: a deliberately conservative approach designed to keep your Bitcoin far from liquidation.
From there, think of the thresholds like traffic lights:
50% LTV: warning zone. You receive a notification that it is time to pay attention.
65% LTV: margin call. You need to act quickly: either repay part of your loan or top up your collateral.
80% LTV: liquidation. Xapo sells your BTC to repay the loan. There are no liquidation fees or added penalties on top of an already difficult event — but this is the outcome everyone on the call agreed you should never let yourself reach.
Bitcoin is volatile, and your LTV moves with the market. If the price falls, your LTV rises — which is why knowing these numbers, and acting fast when you receive a notification, matters so much.
Protecting your collateral: perspectives from the team
The session's most practical guidance came down to four habits.
Just because you can borrow up to 40% doesn't mean you should. Bitcoin has seen drawdowns of 50% in the past, and they can happen quickly. Consider taking a 20–30% LTV instead to give yourself a buffer.
Keep some Bitcoin on the side. Whatever your stack, don't commit all of it as collateral. When volatility hits and a top-up is needed, that spare Bitcoin lets you reduce your LTV quickly and keep your loan safe. As noted, this is exactly what happened during the sharp price drops in February and early June. Members who topped up collateral withstood the volatility with little liquidation.
Turn on notifications. Xapo sends emails and push notifications as your LTV approaches each threshold, but they only help if they are enabled. Sometimes the difference between a safe loan and a margin call is a notification you saw at the right moment.
Know that the team is watching too. Members have a relationship management team looking after them. And yes, sometimes that means a call at two in the morning when a loan is approaching a margin call. Members appreciate it. But as the team put it plainly: it is ultimately your responsibility to know your numbers and manage your loan.
Where your collateral sits, and what Xapo will never do with it
Several members asked how collateral is held, and whether it is ever lent out or rehypothecated.
The answer is a strict no. Xapo has a strict non-rehypothecation policy: your Bitcoin collateral is never lent out, staked, or reused. The only thing it does is secure your loan, and it is returned to you when the loan is repaid. This is also why Xapo does not generate yield on loan collateral — untouched means untouched. You can see your collateral sitting in your Vault throughout the loan, securing it in plain sight.
That policy sits on top of institutional-grade custody with two layers of protection. On the cryptographic side, private keys are sharded using Multi-Party Computation (MPC), so a complete key never exists in any single place at any time — removing any single point of failure. On the physical side, co-signing infrastructure is held in secure physical bunkers. Client assets are segregated, and Xapo has been protecting Bitcoin since 2013.
Rates, terms, and fees
The loan currently runs on a variable interest rate, which has been sitting at around 10% for some time. The rate floats and reflects the cost of capital plus a margin, it is not fixed, and interest accrues daily on your outstanding balance. The exact rate is presented to you when you agree to the loan.
Loan terms currently run for one year, extendable for a further 12 months upon an interest-only repayment, and you can keep rolling the loan over, multiple times. Extensions used to be handled manually; they are now fully automated and self-served in the app, so you can extend directly from the loan section.
On fees, the position is simple: interest is the only thing you pay. There are no origination fees, no arrangement or closure fees, no liquidation fees, and no penalties for early repayment. If you take a loan and only need it for a month, you can repay it early without any extra cost.
What members are using their loans for
With upsizing, extensions, and flexible collateral management, the product now works less like a fixed-term loan and more like a Bitcoin-backed line of credit — borrow, repay, borrow again.
The core idea, as framed in the discussion: you hold an asset you believe will appreciate over the long term, while borrowing and spending fiat, all without selling your Bitcoin. Members use their loans to invest in stocks, real estate, and other assets (which you can do directly within the Xapo app), to cover everyday spending without selling, or for milestone purchases like buying a house. On that last point: limits are high. Xapo has facilitated retail loans of up to $5 million, with each member's limit personalised to their BTC holdings.
And qualifying is refreshingly simple. There are no credit history checks and no payslips. Your pre-approved limit is based on the Bitcoin you hold at Xapo. Want a higher limit? Deposit more BTC and reach out to your relationship manager; adjustments are typically made within about 24 hours.
As for timing, bull market or bear market, the team was clear that nothing in the session was investment or financial advice. In a rising market, appreciating collateral works in your favour; in a downturn, borrowing can help you cover expenses without selling at depressed prices. Either way, it is a tool, and like any tool, it rewards responsible handling.
What's next
A few forward-looking notes from the session, shared as exploration rather than commitments: the team is watching the industry trend toward lower rates and expects loan pricing to improve over time; a fixed-rate option is being explored; and partial liquidations — selling only the minimum BTC needed to bring an LTV back to safety, rather than a full liquidation — is something the team is actively looking at.
One more note: the session covered the retail product. Loans are not currently available to US residents. Xapo also offers solutions for institutions — a topic for a future session.
Have a question the AMA didn't cover? Reach out to the team or your relationship manager — member feedback from sessions like this one directly shapes the product.
