LTV is an acronym that stands for the ratio of your loan amount to the market value of your collateral or simply loan-to-value.
This calculation is used to help potential lenders determine whether your specific loan can be categorized as high or low risk.
Understanding the dynamics of LTV crypto allows you to have a clearer picture of what happens when you want to collateralize your loan using crypto assets. Usually, if your LTV ratio is low, then there is a greater chance for loan approval.
How Do I Calculate LTV Crypto?
Another step involves knowing that LTV crypto differs from LTVs in the traditional sense. The formula itself remains the same.
However, the market value of your crypto collateral can and will fluctuate during the life of your loan.
This fluctuation is based on a composite index price calculation. During an interval of every five seconds, this calculation is used to incorporate price data from major exchanges such as Kraken, Bittrex, Huobi, Binance, and Crypto.
The price data from exchanges such as the ones I have listed above is used to arrive at a composite index price.
This composite index price acts as a basis for determining the value of your crypto assets. This value is used in your LTV calculation.
LTV and Crypto Loans
Various financial platforms mandate an LTV ratio minimum of 50%. And this translates to a deposit requirement for collateral that is twice the amount you expect to borrow.
For example, if a bitcoin is worth £20 000 and you want a cash loan of £40000, your deposit requirement for collateral will be 8BTC. Since the value of BTC fluctuates, so does your LTV ratio.
The LTV ratio of your active loan is monitored closely. Essentially, this is because the value of your collateral is considered in comparison to your loan balance.
Additionally, any increase in BTC values means an increase in your deposited collateral. Once the loan has been paid off, your collateral is returned.
There is also the option of taking out the extra cash. If cryptocurrency fluctuates and the value of BTC falls, then LTV ratios rise to result in a decrease in the value of your collateral.
If the collateral falls below the amount required to protect the loan, you will need to deposit additional collateral so that the LTV ratio reduces. A decrease in the LTV ratio increases the market value of the collateral.
If you do not deposit the necessary collateral to lower the LTV ratio, then liquidation of your collateral can occur to protect the assets of the lender.
Using cryptocurrency to get a loan is a safe process. Hacks have not occurred to any centralized crypto lending platforms.
Most of them have taken steps and integrated cold storage solutions as a way to ensure your collateral is safe away from malicious people.
What’s more? Many top players in Europe are compliant with the applicable laws of their jurisdiction to avoid their government from forcing them to shut down.
You can take a crypto loan to help you get more capital for purchasing cryptocurrency without selling your favorite assets.
Also, you can use BTC as collateral to get a loan and then use it to buy more BTC during a market correction.
What is LVT Crypto
If you were asking yourself: What is LVT Crypto? My blog post has answered your question. Here is an overview of LVT Crypto:
- The LTV = amount of loan ÷ collateral value.
- A low LVT ratio means a higher chance of loan approval.
- The market value of your crypto collateral fluctuates during the duration of your loan.
- Crypto lending is a safe procedure.