Borrowing against crypto lets you get cash โ usually stablecoins โ without selling your bitcoin or ether. People use it to cover expenses without triggering a taxable sale, to keep long-term exposure, or to add leverage. It works until the price falls far enough for the lender to demand more collateral or sell yours. This guide explains how crypto-backed loans work, the numbers that matter, the difference between centralized and DeFi lending, and how to borrow without being liquidated. Run your own numbers with the crypto loan LTV calculator.
The key number: LTV
Loan-to-value (LTV) is the loan divided by the current value of the collateral. Borrow 40,000 USDT against 1 BTC worth $100,000 and the LTV is 40%. As the BTC price falls, the collateral is worth less and the LTV rises โ even though you borrowed nothing more.
Lenders define thresholds:
Because the loan is fixed, each threshold corresponds to an exact price:
A worked example
You deposit 1 BTC at $100,000 and borrow 40,000 USDT at 10% APR for 180 days. The lenderโs margin call is at 75% LTV and liquidation at 83%.
If BTC falls to $60,000, the LTV becomes 66.7%. No margin call yet, but well above a comfortable 50%. To return to 50%, you would add 0.333 BTC as collateral or repay $10,000. The calculator shows both options and a stress table of LTV at price drops from 10% to 60%.
Centralized vs DeFi lending
Centralized lenders (CeFi). A company holds your collateral and lends you stablecoins or fiat. Terms are set by the company: thresholds, interest, margin-call procedures, sometimes grace periods. The risk you add is counterparty risk: in 2022, several large crypto lenders โ Celsius and BlockFi among them โ froze withdrawals and went bankrupt, leaving customersโ collateral tied up in court proceedings for a long time.
DeFi protocols. Smart contracts hold collateral and lend from liquidity pools. Each collateral asset has a maximum LTV and a liquidation threshold; when your positionโs health factor drops below 1, anyone can liquidate part of it and earn a bonus. There is no margin call and no human to negotiate with โ liquidation is automatic and fast. Risks include smart-contract bugs, oracle failures and network congestion during crashes, when topping up collateral may cost more gas or arrive too late.
In the calculator, treat a DeFi liquidation threshold as the liquidation LTV and set the margin-call field to your own comfort level.
How to borrow without getting liquidated
Loan vs selling: an honest comparison
The main reasons to borrow are to avoid selling (and possibly a taxable disposal) and to keep upside. Against that you pay interest, carry liquidation risk and, with CeFi, counterparty risk. A simple test: compare the interest over the loan term with the tax and fees of selling the same amount now, and look at the stress table. If a 40% price drop would force a sale at the worst time, selling part today may be cheaper. Note that in some countries, using crypto as collateral or receiving it back can have its own tax consequences; check locally.
What to do when the price falls
Using borrowed stablecoins
What you do with the loan matters as much as the loan itself. Spending it on living costs is straightforward. Putting it into yield products layers new risk on top: if the yield product freezes during the same crash that pushes your LTV up, you cannot repay. Compare yields honestly with the stablecoin yield comparison, and model compounding with the compound interest calculator โ remembering that your loan interest compounds too.
Margin trading vs crypto loans
Exchange margin and futures positions also have liquidation prices, but the mechanics differ: leverage, maintenance margin and funding fees. For those, use the liquidation price calculator. A collateralised loan is usually lower leverage and slower โ but the same rule applies: the closer you are to liquidation, the less volatility it takes to get there.
Choosing collateral
Not all collateral is equal. Lenders usually allow higher LTVs for BTC and ETH than for smaller coins, because large, liquid markets make liquidations orderly. Stablecoins used as collateral have the lowest volatility but carry depeg risk. Volatile small-cap tokens may be accepted at low LTVs โ and can gap through liquidation levels in a single candle. If you hold several coins, consider whether to post the least volatile one as collateral and keep the others as your top-up reserve.
A second example: the same loan at 60% LTV
Take the earlier setup but borrow 60,000 USDT instead of 40,000. The LTV starts at 60%. The margin call at 75% now comes at $80,000 per BTC โ only a 20% fall โ and liquidation at 83% comes at about $72,289, a 27.7% fall. Crypto markets have produced 20โ30% drops within days many times. The interest is also 50% higher. The difference between a comfortable loan and a fragile one is simply the starting LTV.
Interest: fixed, variable and how it accrues
CeFi lenders often quote a fixed APR for a term; DeFi rates float with pool utilisation and can jump during market stress, exactly when you least want higher costs. Check whether interest is paid monthly or added to the loan balance. If it is added, your LTV creeps up even in a flat market โ for a 10% APR loan, by roughly a tenth of the loan per year.
Repaying and closing the loan
Closing is the moment many borrowers forget to plan. You need the full loan amount plus accrued interest in the right stablecoin on the right network. If your repayment funds are in another coin, convert them a day early rather than at the last minute, and check whether the lender charges any early-repayment fee. After repayment, confirm the collateral is released and withdraw it to your own wallet โ a closed loan with collateral still sitting on a platform keeps the counterparty risk you were trying to limit.
Checklist
A crypto loan is a tool, not free money. With a conservative LTV and a plan for bad days, it can bridge expenses without selling; at a high LTV, it is a countdown. Check yours in the loan LTV calculator.