How to Protect Your Crypto-Backed Loan in Case of Market Crash

advice Mar 27, 2020

March brought high levels of uncertainty to the world, including crypto-market meltdown, coronavirus spread, oil trade wars, and stock markets plunge. The CoinLoan team tried to stay watchful during that trial by fire month to learn how we can minimize further surprises. What's coming next? Nobody knows. But we believe that forewarned is forearmed.

Below, you’ll find two strategies that have proven to be useful during the precipitous fall and helped users to save their loans. By the way, these approaches do not contradict one another. For superior safety, we recommend finding an appropriate mix of both.

Track the crypto market and get ready to act fast

Manage your email notifications so that you can hear CoinLoan alerts at any time of the day or night. For instance, in Gmail, you can change settings to get notified for important emails. On the platform, in My Loans > Borrowing, you can monitor real-time changes caused by market moves that happen with your loan.

When the market goes into a tailspin, you'll have to stay ahead of the curve. The one way is to timely react on margin calls and add more collateral to maintain healthy LTV and prevent it from breaking the liquidation threshold.

A drop can happen very fast. You need to be even faster when adding more crypto. However, the March crash has shown that panic sales can cause significant transaction delays in overloaded networks.

Here we have some tips on how you can speed up your deposits:

  • Transfer fiat to the platform via Visa/MasterCard and convert it into crypto instantly on CoinLoan Crypto Exchange. Thus, your deposit wouldn’t be influenced by the network speed.
  • In case of extraordinary events, please contact our support team. We’re always ready to guide you, give advice, and help, not just in words. For instance, we accelerated and accepted deposits manually before the network confirmed them during the March 12th and 13th.
  • You can also restore the health of your loan, making a few repayments ahead of schedule. CoinLoan allows repayments not only in loan currency but also in any asset you have in My Wallet. Moreover, you can request the liquidation of your collateral asset to repay the loan before coins decrease in its value.

Get your loan-to-value ratio prepared in advance

CoinLoan has one of the highest LTV on the market. You can borrow up to 70% of the collateral’s value. However, more is not always better, especially at a time of significant market volatility.

Experience has shown that loans with lower LTV were more likely to resist a sudden market dip. You reduce the risk of a margin call with every percent of LTV lowering. If you need more info on how it works, we have a blog post that explains LTV.

How to make your loan more resistant and sleep well during the next market crash:

  • When you take out a loan, you can set LTV below the maximum. This feature is now available for both Instant Loans and Lending Market. We can only say that the March drop revealed 50% LTV was a safe choice.
  • Remember that you can always decrease the LTV of active loans by adding more crypto assets. Open My Loans > Loan Details > Add More Collateral. You can later cash out excess LTV that you have put in for sleeping sanity. CoinLoan charges no fees for adding and withdrawing collateral.
  • You can make a couple of payments ahead of schedule. It will decrease LTV, as well. The way is My Loans > Repay > Regular Scheduled Repayment / Full Early Repayment.

There are no magic tricks but, if you plan ahead and do your homework, you can put yourself in the best possible position to protect your assets from unpredictable market moves.


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