Managing Margin Call Risks When Borrowing Against Crypto Assets #
If you’re holding significant Cryptocurrency and want to access Liquidity without selling, borrowing against your position makes sense. Until it doesn’t. Crypto can drop 30% in a week. If you borrowed too much, you get a Margin call. If you can’t meet it, your lender sells your Collateral at the worst possible moment. You just lost capital and triggered a taxable event during a drawdown.
The way to handle this is to assume Volatility will happen and structure your borrowing so forced liquidation is never on the table.
Start with loan-to-value ratios that leave room. If a lender offers 50% LTV, you take 25%. Maybe 30% if you’re feeling aggressive. The Spread between your loan amount and the liquidation threshold is your buffer. Crypto moves fast. You need a buffer that can absorb a serious drop without getting anywhere near Margin call territory.
Multiple lenders matter because Concentration Risk works both ways. If one lender holds all your Collateral, you’re subject to their specific terms, their Risk Management decisions, their platform stability. Spread Collateral across two or three lenders. Different platforms, different jurisdictions if possible. This also gives you Options if one relationship goes sideways.
Excess Collateral means you’re overcollateralized from the start. You’re not borrowing the maximum available. You’re borrowing what you need and keeping the rest of your holdings free and clear. This gives you flexibility to add Collateral if markets move against you, or to rotate Collateral if one asset is getting hit harder than others.
No cross collateralization. Each loan should be isolated to specific Collateral. You don’t want a Margin call on one position triggering liquidation across your entire Portfolio. Segregate the risk. If something goes wrong, it stays contained.
Know your liquidation rules before you sign anything. What’s the exact LTV that triggers a Margin call? How much time do you get to add Collateral? What assets can you add? Does the lender liquidate everything at once or in tranches? Can you close the loan early without penalties? These details determine whether you have control during Volatility or whether the lender does.
Liquidity buffers are non-negotiable. You need cash or stablecoins sitting somewhere that can be deployed fast. Not tied up in locked Staking. Not in some DeFi Protocol with a seven-day withdrawal period. Actual liquid assets you can move in minutes if you need to add Collateral or pay down a loan.
This is all about structure. You’re not trying to time the market or predict when Bitcoin drops. You’re building a borrowing setup that can handle extreme moves without forcing you to sell at the bottom.
When you’re managing a Treasury of digital assets, this kind of planning needs to sit inside a larger wealth structure. A registered investment advisor can handle your traditional Portfolio, but crypto borrowing and Collateral management requires specific expertise. You need someone who understands both the technical side of Digital Asset Custody and the wealth management side of Liquidity planning.
Digital Wealth Partners provides fiduciary-level wealth management and investment advisory services for clients with significant digital and traditional assets. They handle Custody, financial planning, and the coordination between different asset classes.
For families or business owners where the financial picture is more complex, Digital Ascension Group offers Family Office services that go beyond Portfolio management. Multi-generational planning, estate coordination, tax strategy across entities, the kind of oversight that makes sure your crypto borrowing strategy fits with your estate plan and doesn’t create problems down the line.
The point is to set this up right from the beginning. Margin calls shouldn’t be something you react to. They should be something that never happens because you structured your Leverage conservatively enough that Volatility doesn’t matter.
Contact Digital Ascension Group to learn how our Family Office services can coordinate your complete financial picture, including Digital Asset Liquidity strategies.
