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How LTV creeps toward liquidation
When you take a Bitcoin-backed loan, the key number is your loan-to-value ratio — the loan divided by the value of your collateral. Borrow $40,000 against $100,000 of Bitcoin and you start at 40% LTV. The loan amount stays fixed, but the collateral's value moves with the market, so when Bitcoin falls, your LTV climbs — and every lender sets a line where it intervenes. Two thresholds matter: the margin-call LTV (a warning) and the higher liquidation LTV (the point of no return). The lower you borrow to start, the further Bitcoin has to fall before either is triggered. You can see the exact price for your own numbers with the liquidation calculator.
The liquidation sequence, step by step
- Bitcoin drops and your LTV rises. Nothing happens yet, but your cushion is shrinking.
- Margin call. Your LTV hits the lender's margin-call level. You're notified (email/app) and given a window to act — add collateral, or pay down part of the loan to bring LTV back down.
- The grace window. Some lenders give hours or a day; others act fast in a sharp move. This is your last chance to avoid a forced sale. (Volatile markets can blow through this window quickly.)
- Liquidation. If LTV reaches the liquidation threshold, the lender sells enough of your Bitcoin — or the entire position — to repay the loan, often automatically and at whatever price the market offers at that moment.
- Settlement. The loan is repaid from the proceeds; any remainder (minus fees) may be returned to you, depending on the lender and how far the price fell.
Partial vs full liquidation — a crucial difference
Not all liquidations are equal, and this is one of the most important things to check before borrowing:
- Partial liquidation — the lender sells only enough Bitcoin to bring your LTV back to a safe level, leaving you with the rest of your position and your loan intact. Far less damaging.
- Full liquidation — the lender closes the entire position in one move. Some lenders (for example, certain collaborative-custody setups) treat a margin call as a full-position event. A single bad wick can cost you everything posted.
Two lenders with identical rates can have very different downside here. The comparison table shows each lender's liquidation threshold, and our methodology explains how we read the fine print.
What liquidation really costs you
The headline cost is the Bitcoin itself — sold at the worst possible time, usually during a sharp drop. But there's more: many lenders charge a liquidation fee on top, the sale happens at market prices in a falling market (so execution can be poor), and you lose all the future upside on coins you intended to hold for years. The whole reason to borrow instead of sell was to keep that upside — liquidation hands it away involuntarily, which is the worst of both worlds.
The tax sting most people miss
In the US, a forced liquidation is treated the same as a voluntary sale. The IRS does not care that you didn't choose it: selling your Bitcoin realizes a capital gain or loss against your cost basis, so a liquidation can leave you with a tax bill on top of the lost coins and fees. If those coins had appreciated a lot since you acquired them, that bill can be significant. This is exactly why avoiding liquidation matters financially and for tax — and it's covered more fully in borrowing against Bitcoin without selling.
How to avoid liquidation
Liquidation is almost always preventable. The levers, in order of impact:
- Borrow at a low LTV. This is the big one. At 25% LTV, Bitcoin can roughly halve before you're in trouble; at 60%, a modest dip can trigger a call. A smaller loan is a bigger safety margin.
- Know your liquidation price before you sign. Use the liquidation calculator to see the exact price that triggers a margin call and liquidation for your numbers — then ask whether you could stomach that price actually happening.
- Keep a buffer ready. Spare cash or BTC you can post quickly turns a margin call into a non-event instead of a forced sale.
- Monitor in volatile markets. The danger is a fast drop you don't notice in time. Set a price alert so you're warned before you approach your liquidation level — not after.
- Choose lenders with partial liquidation and a real grace window. The structure matters as much as the rate.
Get warned before you'd be liquidated
Set your loan once and we'll email you when Bitcoin approaches your liquidation price — so a margin call never catches you off guard. Free.
Set up a liquidation alert →FAQ
What does liquidation mean on a Bitcoin loan?
The lender sells some or all of your Bitcoin collateral to repay the loan because its value fell and your LTV crossed the liquidation threshold. It usually follows a margin-call warning.
Do I lose all my Bitcoin if I'm liquidated?
Not always — some lenders sell only enough to restore a safe LTV (partial), others close the whole position (full). Check the policy before borrowing; it changes your downside a lot.
Is liquidation a taxable event?
Generally yes in the US — a forced sale realizes a capital gain or loss just like a voluntary one, even though you didn't choose to sell. This is general information, not tax advice.
Can I stop a liquidation once it starts?
Only by acting during the margin-call window — adding collateral or paying down the loan before the liquidation threshold is hit. Once it triggers, the sale is usually automatic. A price alert buys you that time.
What's the safest LTV?
There's no magic number, but lower is safer. Many cautious borrowers stay around 20–35% so Bitcoin can fall substantially before any margin call.