In Part 1, we established the basic structure of a Bitcoin-backed loan: bitcoin is pledged as collateral, a lender provides the loan, and the agreement defines what happens while the debt remains outstanding. Now we can focus on the number that connects the debt to the changing value of that collateral: loan-to-value, or LTV.
LTV is a lending metric, not a Bitcoin rule. Bitcoin's consensus rules determine things such as transaction and block validity; they do not define loan thresholds, margin calls, or liquidation rules.
We will keep using the same example from Part 1:
- 0.20 BTC pledged
- BTC price: $100,000
- Collateral value: $20,000
- Debt: $10,000
- Initial LTV: 50%
For the first calculations, we will hold the debt at $10,000 and use one assumed BTC price at a time.
A Quick LTV Refresher
The basic formula is:
LTV = debt ÷ current collateral value × 100
Our starting collateral is worth:
0.20 BTC × $100,000 = $20,000
So:
$10,000 ÷ $20,000 × 100 = 50%
A 50% LTV means the debt equals half of the current value of the collateral. It is simply a ratio between two dollar values.
Think of LTV as a gauge. If the debt becomes large relative to the collateral, the gauge rises. If the collateral becomes more valuable relative to the debt, it falls.
What Makes Your LTV Rise or Fall?
Because LTV compares debt with collateral value, either side can change the result.
When Bitcoin Falls
If BTC falls to $80,000 while the debt stays at $10,000:
0.20 × $80,000 = $16,000 of collateral
Then:
$10,000 ÷ $16,000 × 100 = 62.5% LTV
The borrower did not take out more money. LTV rose because the collateral became less valuable.
When Bitcoin Rises
If BTC rises to $125,000:
0.20 × $125,000 = $25,000
Then:
$10,000 ÷ $25,000 × 100 = 40% LTV
The debt is unchanged, but the collateral is worth more, so LTV falls.
When the Debt Balance Changes
Holding debt at $10,000 makes the basic math easier, but a real loan balance may change.
Depending on the agreement, the amount used to calculate LTV may reflect repayments, unpaid accrued interest, or other contractual amounts. Strike, for example, currently states that applicable payment-at-maturity loans can see LTV rise as unpaid interest accumulates even if BTC's price does not fall.
So LTV can move because the collateral value changes, the debt changes, or both.
Following the Same 0.20 BTC Loan
From here, suppose a loan agreement uses these thresholds:
- Warning: 65%
- Margin call: 70%
- Liquidation: 85%
- Recovery target: 65%
These are teaching assumptions, not Bitcoin rules or universal lending standards.
Our loan still begins with 0.20 BTC worth $20,000, $10,000 of debt, and 50% LTV. As BTC falls, the value of the collateral falls and LTV rises.
At What Bitcoin Price Would a Target LTV Be Reached?
Suppose we want to know the BTC price that would push this loan to 70% LTV.
Starting from:
LTV = debt ÷ (BTC amount × BTC price)
we solve for BTC price:
BTC price = debt ÷ (BTC amount × target LTV)
When a percentage is used inside the formula, we write it as a decimal: 70% = 0.70, and 85% = 0.85.
Using our numbers:
$10,000 ÷ (0.20 × 0.70) = approximately $71,428.57
At that price, 0.20 BTC is worth approximately $14,285.71.
Then:
$10,000 ÷ $14,285.71 ≈ 70%
This does not predict Bitcoin's future price. It only tells us the price at which this simplified loan would reach the chosen LTV if the debt and BTC amount stayed unchanged.
Using the same method, 85% LTV would occur at:
$10,000 ÷ (0.20 × 0.85) = approximately $58,823.53 per BTC
At that price, the 0.20 BTC collateral would be worth about $11,764.71.
Change the debt, BTC amount, or target LTV and the result changes.
What a Margin Call Can Mean
A margin call, where the contract uses that term, means the loan has reached a point where the borrower may need to act.
That might involve adding collateral, reducing debt, or taking another action specified in the agreement. Providers can use different terminology, thresholds, and response windows, and some products have no price-triggered margin call at all.
Bitcoin itself does not issue margin calls. The loan agreement determines whether one exists and what happens when its threshold is reached.
Two Ways to Lower LTV
Suppose our hypothetical loan has reached 70% LTV. Debt is $10,000, collateral is worth about $14,285.71, and BTC is about $71,428.57. The target is to return to 65%.
Add More Bitcoin Collateral
To make $10,000 equal 65% of the collateral:
$10,000 ÷ 0.65 = approximately $15,384.62
Additional collateral needed:
$15,384.62 − $14,285.71 = approximately $1,098.90
At the assumed BTC price:
$1,098.90 ÷ $71,428.57 ≈ 0.01538 BTC
Adding about 0.01538 BTC would bring the simplified model back to roughly 65% LTV.
The debt did not change. The ratio fell because the collateral increased.
Repay Part of the Debt
Keep the collateral value at about $14,285.71.
At a 65% target, debt would need to be:
0.65 × $14,285.71 = approximately $9,285.71
Required repayment:
$10,000 − $9,285.71 = approximately $714.29
Here, the collateral stays the same while the debt—the top number in the LTV ratio—gets smaller. That makes LTV fall.
A real agreement may impose its own timing, confirmation, minimum-amount, or other requirements.
What Liquidation Can Mean
Liquidation means collateral is sold or otherwise used to reduce or satisfy debt under the loan agreement.
It is not necessarily total, and it does not always happen at the same LTV or after the same warning process. Price-driven liquidation is our focus here, but missed payments, failure to repay at maturity, or other contractual events can also trigger collateral consequences.
How Partial Liquidation Works
At our hypothetical 85% threshold, BTC is about $58,823.53 and the 0.20 BTC collateral is worth about $11,764.71.
With $10,000 of debt:
$10,000 ÷ $11,764.71 ≈ 85%
Suppose the agreement sells only enough collateral to restore LTV to 65%.
For this teaching model, assume one execution price, no fee or spread, no price movement during execution, and that every dollar of sale proceeds reduces debt by one dollar.
Why can that lower LTV if both numbers shrink? If $1 of collateral is sold and applied to the loan, collateral falls by $1 and debt also falls by $1. But because the debt starts smaller than the collateral value, that same dollar represents a larger percentage reduction in debt. The debt-to-collateral ratio can therefore fall.
We are looking for the amount that leaves:
remaining debt ÷ remaining collateral ≈ 65%
Under these assumptions, about $6,722.69 of collateral must be sold, or roughly 0.1143 BTC.
Debt remaining:
$10,000 − $6,722.69 = approximately $3,277.31
Collateral remaining:
$11,764.71 − $6,722.69 = approximately $5,042.02
And:
$3,277.31 ÷ $5,042.02 ≈ 65%
The target has been restored under the simplified assumptions. This is an idealized teaching model, not a universal liquidation formula; real contracts may use different prices, spreads, fees, debt definitions, or procedures.
Why the Same Numbers Do Not Apply to Every Provider
You do not need to memorize the provider-specific figures below. They show how real loan agreements can translate LTV levels into different actions.
For applicable Strike standard or non-volatility-proof products, the current maximum initial LTV is around 50%. A warning appears at 65%, and 70% triggers a margin call with 72 hours to return to 65% or below. If it is not resolved, Strike may sell enough collateral to restore 65%; at exactly 70%, its example estimates a sale of about 14% of the collateral.
If LTV reaches 85% at any time, however, immediate partial liquidation can occur even if that earlier 72-hour window is still open. Strike's 85% example estimates that about 57% of the collateral would be sold to restore the loan to 65%.
Strike also offers volatility-proof loans with a different structure. Their current maximum initial LTV is 40%, and price alone does not trigger the 65% warning, 70% margin call, or automatic 85% partial liquidation used in the standard framework. Missed required payments or failure to meet maturity obligations can still affect the collateral.
Ledn uses different terminology and thresholds. Its loans generally begin around 50% LTV, with an LTV notification around or above 70% and another reminder at 75%. At 80% or above, Ledn says it sells a portion of the collateral to cover the outstanding loan balance and accrued interest. A 0.50% trade spread applies, and remaining collateral is returned to the user. Ledn calls these warnings “LTV notifications” rather than margin calls.
The broader point is that thresholds, terminology, valuation methods, and liquidation mechanics belong to the loan agreement, not to Bitcoin.
Thresholds and Response Windows
A threshold determines when a particular contract rule takes effect. A response window, if one exists, tells the borrower how much time there is to respond at that stage.
A higher threshold may still trigger a different action before an earlier response window expires. Other products may use different warning systems or no price-triggered margin-call process at all.
The Price Used to Value Your Bitcoin
Our examples use one simple BTC price. Real providers may define their own valuation method.
Strike currently uses an aggregated reference price based on multiple liquidity providers. Ledn calculates LTV using an adjusted BTC price that includes its documented 0.50% trade spread.
So the price used by the loan agreement may not exactly match the price shown on one public exchange.
What Rapid Market Moves Change
A response window does not freeze the market.
If BTC keeps falling after a warning or margin call, collateral value can keep falling and LTV can keep rising. Strike's standard framework provides a concrete example: 70% can start a 72-hour margin-call window, but reaching 85% during that period can still trigger immediate partial liquidation.
BTC can also recover, causing LTV to fall. Some agreements may cancel a margin call if the required ratio is restored during the response window. The result depends on the contract's valuation method, thresholds, timing rules, and liquidation mechanics.
The Durable Mental Model
LTV is the relationship between debt and collateral value.
If collateral value falls while debt stays similar, LTV rises. If collateral value rises, LTV falls. If debt grows, LTV can rise even without a drop in BTC price. Adding collateral or reducing debt can lower it.
Warnings, margin calls, response windows, and liquidation rules come from the loan agreement. The math describes the relationship between debt and collateral; the contract determines what happens when that relationship reaches a particular level.
Disclaimer: This article is for educational purposes only and does not constitute financial, investment, tax, or legal advice. Bitcoin-backed loans involve risks, including liquidation and the possible loss of some or all pledged collateral. Loan terms, tax treatment, and legal obligations can vary by provider, jurisdiction, and individual circumstances. Before entering any loan agreement, review its terms carefully and consider seeking qualified financial, tax, or legal advice appropriate to your situation.
Last technical review: September 19, 2026