What does LTV mean?
LTV (loan-to-value) expresses the ratio of the used loan limit to the current account balance. It is calculated as the loan amount (USD) divided by the current value of Bitcoin (USD) on the user’s balance.
As soon as the loan is issued by Biterest, the information about the LTV ratio will appear in the Biterest account. It will help the user to control the balance between the used loan limit and the collateral value.
Consider an example:
Used loan limit: 1000 USD;
Current account balance: 1200 USD;
LTV (loan-to-value): $ 1000 / $ 1200 * 100% = 83,3%
The highest initial LTV among all instant crypto lendings — 83% — is on Biterest. You can get loans up to 83% of your Bitcoin value, unlike other lending platfrorms which perform only 50% LTV.
What makes LTV change
The greater the difference between the used loan limit and balance value is, the lower the LTV ratio will be.
As you know Bitcoin rate is very volatilitile and its price can either sharply increase or unexpectedly decrease. Therefore, the Biterest platform analyzes Bitcoin price fluctuations on an ongoing basis and shows the account balance level in accordance with the current Bitcoin value.
When the Bitcoin rate moves up, the LTV decreases and vice versa.
Move on to the example:
Bitcoin price has increased by 10% so that the account balance increased to $1320 from $1200.
Used loan limit: 1000 USD;
Current account balance: 1320 USD;
LTV (loan-to-value): $ 1000 / $ 1320 * 100% = 76%
The Result: Thanks to the growth of the Bitcoin price, the level of the account balance increased. Therefore, the loan limit increased too and now the user can receive more funds in a loan without adding collateral.
If nothing is done, the amount on the balance will continue to increase and be used as a “buffer” from negative consequences, for example, Margin Call which may occur after a rapid decline in Bitcoin price.
If Bitcoin price sharply decline …
If the Bitcoin price decreases, the LTV increases. However, the balance cannot go down indefinitely, since it is limited by the amount of the used loan limit by the user.
Thus, the LTV in the account can reach a maximum of 90%, after which Margin Call occurs. In this situation, the loan is automatically repaid using the bitcoin from the account balance.
If the LTV exceeds 80%, the user will begin to receive email notifications of a risk of Margin Call. To avoid Margin Call, they need to partly repay their loan or provide additional collateral by replenishing the account balance. It is recommended to keep the LTV level at around 50% in order to protect yourself against a sharp drop in Bitcoin price.
The example:
The Bitcoin price decreased by 16,6% and the balance accordingly decreased from $1320 to $1100.
Used loan limit: 1000 USD;
Current account balance: 1100 USD;
LTV (loan-to-value): $ 1000 / $ 1100 * 100% > 90%
The Rusult: In our example, Margin Call will occur when the account balance decreases by $220 and become 1100 USD.
