Considerations for Filing Taxes as a Crypto Holder in 2020

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Disclaimer: This article is for informational and educational purposes only and does not constitute tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors when filing your taxes.

While the tax deadline has been extended from April 15, 2020 to July 15, 2020 due to the COVID-19 crisis, it’s still a good idea to file as soon as possible, especially for those taxpayers who are expecting a refund. For crypto holders, it’s important to note that for the first time ever, this year every tax-paying American will be getting quizzed explicitly on their crypto activity. Indeed, the 2020 season will mark the first time the following question appears right at the top of the 1040 tax form:

“At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

This year however, federal tax forms ask about your bitcoin and other cryptocurrency activities, the latest move to more directly specify details for cryptocurrencies. The IRS is focusing on those who may be underreporting their crypto transactions or not reporting them at all.

What does this new sentence in your tax form this year really mean, and how should it impact how you report crypto in your 2019 taxes? To help understand, we asked SALT experts, along with our partners and friends at Node40TaxBitBlox and Friedman LLP.

Know Your Cost Basis

The first thing to know is that one is taxed on profit — the key figure to find out is the gain number. The most recent set of guidance from the IRS was released in October 2019 and it included a few methods of “cost basis assignment” mentioned therein. For those who aren’t accountants, this means one of a few ways to track profits and losses. Know your cost basis and what the IRS deems taxable. Most importantly, know your “gain number.”

Cost basis means the price at which you initially acquired an asset. For example, if you hold one BTC today, which you previously purchased at $9,000, and the price today is $11,000, the cost basis is that acquisition price of $9,000. So, the unrealized gain number (without selling) and the realized gain number (if you were to sell) is the net between today’s price and the cost basis, meaning in this case $2,000.

Cost basis can also mean the fair market value of the asset on the date of acquisition. For example, you received one BTC from work as compensation for services on 1/1. The value of BTC on 1/1 is $9,000. Later when you sell one BTC at $11,000, the then fair market value of $9,000 would be the cost basis, and you would realize $2,000 gain. The fair market value can be determined using a reasonable method, such us prices on any third-party independent trading platforms, as long as the same method is applied consistently for all your crypto transactions.

Loan collateral does not count as a transaction

For SALT customers, it’s important to know that your crypto held as collateral for a cash or stablecoin loan does not count as a taxable transaction unless your collateral is liquidated; a liquidation is a taxable event. If your collateral increases in value during the course of your loan term, this does not count as a gain or taxable action unless the collateral is sold. According to Friedman LLP, should you have a business loan with SALT, take note that business interest is deductible and subject to limitations (generally 30% of adjusted taxable income if the business had more than $25 million gross receipts). While interest on personal loans is generally not deductible, it may be deductible if you are self-employed and you use the loan for your own business or if you are employed but you use the loan to make other investments that generate income (the loan then becomes a business loan or investment loan).

First-In-First-Out (FIFO)

First-In-First-Out (FIFO) is the default accounting method. Your cost (the price at which you purchase a crypto asset) is calculated at the initial purchase date. So, if you buy a Bitcoin in January, another in March, and sell one in June, the “cost” isn’t from March, but January. The first “in” is the first purchasing transaction. First “out” is the first one sold. With digital currency the date of purchase and sale are clear in the coins and tokens themselves, making reporting much easier.

The aforementioned guidance from the IRS clarifies how to calculate your gain number.

By way of example: assume you purchase one BTC on 1/1 for $10,000, one BTC on 2/1 for $15,000, and then sell one BTC on 3/1 for $12,500 — your taxable gain or loss using first-in-first-out is computed by taking $12,500 of proceeds less your cost basis of $10,000 (which comes from the earliest purchase of BTC). This results in a $2,500 taxable gain.

While FIFO is the default method, the IRS makes it clear that the Specific Identification method can also be used if a taxpayer can document unique digital identifiers such as a private or public key. The acceptance of specific identification is favorable for taxpayers, as it allows taxpayers to assign their highest cost basis lots first, which in return minimizes their tax liability.

More details on this specific topic can be found over at Taxbit’s blog here.

Be Careful Using 1099s from Exchanges

If you have been buying crypto through exchanges, the exchange may have sent you a 1099-K or 1099-B form. Even if you did not receive these documents, all the 1099 methods of calculating income are still valid for you. The exchange calculates and reports gross proceeds, meaning that it is on the taxpayer to provide information on the cost they paid to acquire said assets and reported in the capital gains section, otherwise known as IRS 8949.

Specifically, form 1099-K reports gross proceeds, which the IRS interprets as income. The number reported on form 1099-K is not counted as income however, as cryptocurrency trading carries cost basis and is to be reported in the capital gains and losses section of a taxpayer’s tax return. Form 1099-B reports cost basis when available and makes it easier for you as a taxpayer to complete your required IRS 8949. Some cryptocurrency exchanges may not send you anything at all. Regardless of which form you receive or don’t receive, your responsibility as a taxpayer is to use the information to complete your IRS 8949, which reports your capital gains and losses.

Verify the Data You Receive

The crypto industry is still relatively new and while the exchanges and trading technology may have some advanced reporting features built in, the institutions built around that technology are still new. With traditional securities, there is a clearinghouse, a broker, and well-established financial statements that make it easy to determine your taxes. With cryptocurrency, many of the exchanges are still in the process of refining external reporting standards. This means that, as a user, the level of completeness in reporting expected from NYSE cannot possibly be replicated by virtually any new institutions.

According to data by NODE40, the reports generated by cryptocurrency exchanges will be incorrect for about 80% of cryptocurrency traders. We can’t fault the exchanges because there is simply no way for them to determine the cost basis of the assets you’ve been moving around. For this reason, it’s important to consider using a third-party platform that can calculate the gains and losses on your cryptocurrency as you move it from exchange to exchange or wallet to wallet.

Conclusion: Educating Ourselves is Essential

Crypto accounting and tax reporting can be daunting and complex, which is why staying engaged with news and trends is essential to understanding the evolving landscape of crypto taxation. Especially in the U.S, the IRS is taking more steps to introduce greater guidance and clarity. But without proper education and trained professionals, navigating crypto tax can be tough.

Tax preparers and investors rely on 1099 forms in traditional markets — crypto is no different. Without it, the burden of responsibility shifts to the investor, requiring them to keep track of all of their crypto activity for the year. This includes tracking every crypto-related transaction, like fair market value based on the date of purchase or sale of assets.

All of this information is vital for preparers to determine cost basis and properly calculate gains and losses. Therein lies the primary challenge. Some crypto accounting and management platforms have emerged to solve this growing industry need for smarter solutions. Industry giants need reliable, accurate and smart tools.

Because crypto remains a new field and exchanges are widespread around the world, not all exchanges report in the same method. This is why the savvy users will double check the work of the exchange, a task for which there are now new tools available. These errors can have a massive tax impact, particularly when it comes to tracking the cost of acquisition of the asset over time. Luckily there are tools that exist that can provide traders and crypto entrepreneurs with intelligent support.

Taxes are a part of life. This year hundreds of millions of Americans will be reminded explicitly of the existence of digital assets — a good thing for the industry that will drive greater awareness and adoption of cryptoassets. If you’re already a crypto hodler or trader, diligence is key to successfully filing your 2019 taxes this year. Whether you use a third-party tool or rely solely on exchanges to track the movement of your assets, it’s crucial that you know your gain number and verify its accuracy, that you review the IRS guidelines, and that you use trusted sources to educate yourself on what to report and how to go about it.

SALT Adds DASH as Collateral and Offers a Way to Maintain Your Masternode

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We’re proud to announce that we now accept DASH as collateral.

Better yet, if you own DASH that’s being used for a masternode, we’ve also developed a way for you to maintain your masternode status, voting rights and payouts and still use it as loan collateral. To do so, follow these instructions before you deposit your DASH into your SALT collateral wallet.

Like other cryptocurrencies, Dash enables anyone, anywhere in the world to make quick, easy and cheap payments at any time without going through a central authority.

Given its long-term viability, its numerous use cases, and its level of adoption, Dash is an appealing collateral form for our platform. Aside from that, we chose Dash as our next collateral type for two primary reasons:

  1. We support the Dash community and its mission
  2. We respect Dash’s two-tier network and use of masternodes to maintain the health of their blockchain

The Dash Mission

In his interview with Cointelegraph, CEO of Dash Core Group Ryan Taylor notes that Dash offers “tremendous value to society,” particularly for people that live in areas with minimal financial freedom and poor quality financial systems: “I would love to see Dash first adopted in some of the poorest and most financially oppressed markets in the world, so that as Dash grows, we bring those people up with us.”

By providing increased financial freedom, secure technology, and irreversible, speedy transactions, Dash is increasing access for people to participate in the global economy regardless of where they’re based. We support this mission and recognize it as one of the most significant ways blockchain technology can change people’s lives — and the world — for the better.

The Dash Network and Masternode System

In a separate, more recent interview with Anthony Pompliano, Taylor explains the concept of masternodes and how unlike the Bitcoin protocol, which allocates 100% of the network’s revenue toward mining, the Dash protocol is designed such that the block reward is split into three parts: 45% of the revenue goes to miners and 45% goes to masternode operators who service the network. The remaining 10% goes to a proposal system where the proposals are voted on by the masternode operators and the highest ranking proposals pay out as part of a monthly budget. This two-tier infrastructure ensures that network participants are incentivized to “keep the network happy.” Masternode operators in particular have a vested interest in doing what’s best for the network to maintain its health.

In explaining the masternode system further, Taylor notes that you have to prove ownership of 1,000 DASH in order to obtain masternode status, though he makes it clear that “as soon as that money is moved, your node downgrades immediately.” While that’s true in most cases, we’ve developed a way for you to maintain your masternode status even after you move your Dash to the SALT platform.* With these step-by-step instructions, you can custody your Dash with us and still run your masternode.

For questions about taking out a Dash-backed loan or to custody your Dash with us, visit us at https://saltlending.com/ or call us at +1 720–897–3710.

  • Dash used as collateral for a loan with SALT may be liquidated, in whole or in part, according to the terms of your Loan Agreement. SALT is not responsible for maintenance of a masternode or any disruption to or downgrade of any masternode for any reason, which may result from a liquidation of loan collateral or any other applicable term or terms of your loan agreement.

SALT Now Offers Loan-to-Value (LTV) Options Up to 70%

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We have increased our range of Loan-to-Value (LTV) options, allowing you to tailor the loan product that is right for you. In addition to our existing 30%, 40% and 50% LTV options, you can now select up to a 60% or 70% LTV, allowing you to unlock even more value from your crypto holdings.

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While starting your loan at 70% LTV means you need less loan collateral to get started, it may lead to higher risk for you as the borrower. This is why SALT has been focused on creating tools that allow you to manage the risks associated with your loan based on your own tolerance.

● Customizable notification system — When you sign up for a SALT account, you automatically receive email alerts about your account activity. From our website or mobile app, you can customize your notifications even further by opting in to calls, texts and/or push notifications.

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● Loan-to-Value (LTV) monitoring system — This near real-time system reports your loan health (in LTV) and portfolio value through the life of your loan. Even when you aren’t watching your portal for updates, our automated notification system helps keep you up-to-date via calls, texts and emails so you’re alerted during volatile market conditions.

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● Mobile app — Our mobile app allows you to register for an account, monitor your collateral and loan status, and deposit or withdraw assets.

Download the app for iOS and Android.

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● TrueUSD and USDC — With the recent addition of these stablecoins to our accepted collateral types, you can stabilize your LTV at anytime by transferring TrueUSD, USDC, or a combination of the two directly to your account — even on nights, weekends and holidays.

SALT Expands Lending Opportunities to Businesses in Australia

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Having participated this week in the ADC Global Blockchain Summit held in conjunction with the South Australian Government and the Australian Digital Commerce Association (ADCA) in Adelaide, SALT is actively incorporating its technology services into the burgeoning Australian market. With a particular focus on strategies and practical applications for business growth via blockchain technologies and systems, SALT spoke to the Summit’s key topics from experience intersecting business, public policy, and the regulatory environment.

Australia has demonstrated a keen interest in developing its blockchain industry. The Ministry for Industry, Science and Technology today announced a blockchain roadmap with AU$100,000 in federal funding for “regulation, skills and capacity building, innovation, investment, and international competitiveness and collaboration.” Working directly with blockchain businesses at the ADC Summit, SALT is deploying its Software as a Service packages, which allow traditional companies to easily add cryptocurrency and blockchain offerings into their product portfolio including lending technology, wallets, monitoring, and blockchain analysis. With Australia’s continued commitment to developing blockchain services responsibly, SALT looks forward to working with interested parties and stakeholders across the Australian market to bring their vision into reality.

Crypto companies looking for extra liquidity to expand their businesses, such as exchanges or mining companies, can join SALT and apply for a crypto-backed loan.

As SALT continues to grow, we remain focused on further expanding our technology products, allowing both crypto and traditional companies to integrate blockchain services into their software stacks.

Client Spotlight: Justin Podhola, Founder and CEO, Elite Mining Inc.

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We learn a lot from the people who use our platform every day and enjoy collecting their feedback so we can use it to continue improving your experience with SALT. We spoke with our business client Justin Podhola, founder and CEO of Elite Mining Inc. — a company that generates mining capabilities through clean energy.

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I’ve had quite a few years of trading experience overall. I started out trading on the US Stock Exchange over 10 years ago. Following that, I worked in real estate, building homes and flipping houses. I’ve always been a tech junkie, but I never really had a good place to put my knowledge and skills to work. Eventually one of my buddies asked me if I’d ever heard of Bitcoin, and while I was really interested in the technology, it didn’t make any sense to me at the time because I didn’t take the time to understand it. I started doing some research on it in 2016 and in early 2017 I decided to go ahead and take a chance on cryptocurrencies, and spent my life savings to start mining. I’m so glad I did because I’ve been so much better off because of it, and I’m able to contribute to an ecosystem that really resonates with me as a person.

Throughout the past couple of years, we’ve found there’s a strong need for proof of work and proof of stake, especially right now in the current markets for a lot of the smaller coins. They need more infrastructure built around them. Based on this research, I founded Elite Mining Inc. in late 2017. The business is profitable, but at the end of the day, the most important thing is that we’re able to provide security for blockchains. This market is ever-evolving and we’re looking forward to seeing where it goes.

The current narrative around mining is that it’s going to harm the planet in the future — I’m really focused on not only squashing this notion, but on becoming the leader in clean and profitable mining. Bitcoin is sound money, and for our new cryptosphere to really lead the next generation of miners, we have to be focused on both reducing emissions and securing Dnet blockchains.

The sentiment is that being green with clean / renewable energy ends up losing you profits, but prior to founding the company, we conducted about six months’ worth of due diligence before we chose the state in which we wanted all of our facilities to be located. We wanted to be located in a geographic area that would allow us to scale into the hundreds of megawatts range and simultaneously be nearly 100% clean in our energy consumption for POW and POS (Proof of Work and Proof of Stake). Specifically and what ultimately made our decision is the fact that Washington State is the leading hydroelectricity-producing state in the nation, without a close second, but yet inherently has some of the lowest electricity rates in the entire world.

Washington State is inherently 91 to 92 percent all clean energy, which is the reason we chose it for our business. We looked at other states including New York, Montana, and Texas, but ultimately I was already living in the best state for what we wanted to do. The biggest pain point for renewable energy and mining is figuring out how to scale with it — we knew that operating out of Washington would allow us to do that. Having made this decision, we’re able to take advantage of some of the best electricity rates in the world and constantly deploy renewables on a distinct time scale within our operations to maintain the backbone of our operations, and at the same time lower our electricity costs in perpetuity.

There are a few things that drew me to SALT. The first thing was the branding — I thought it was absolutely clean and genius. The SALT brand reminds me of Nike because it has a simple logo with strong meaning behind it. It’s a straightforward concept and given the colors and themes are good, I thought the company had a strong possibility of selling itself well. The next thing that caught my attention was SALT’s platform — it was extremely unique in the way the company built its tokenomics and membership benefits out of the SALT token. That really intrigued me, and as I conducted additional research, I learned early on that while I needed to cover the costs of electricity and of buying more rigs, there’d come a point where I’d want to try and keep as much Bitcoin and Ethereum as I could. I anticipated future appreciation, so I didn’t want to sell my assets. I figured that using SALT would put my business at an advantage because we could HODL all of our Bitcoin and Ethereum, use it as collateral, and generate additional income as a result of long-term appreciation. We don’t know where Bitcoin will be in two to three years, but by that point, if I hadn’t decided to do something like this now and use SALT to HODL my crypto, I would lose essentially 30–40 percent of my holding coin assets by having to sell them off to continue running my business. For me, using SALT was a no-brainer.

First of all, the SALT loan is enabling us to hold our assets, which is the most important attribute. Our most valuable assets are our Bitcoin and Ethereum, and while we also mine other coins, we’re able to sell into Bitcoin and Ethereum. Now that we’ve implemented SALT into our business model; we’re going to consistently contribute more to our BTC and ETH wallets on the SALT platform by adding more collateral over time. I can continue to add collateral as I go along, instead of paying bills directly by selling my Bitcoin and losing that future appreciation value. Then into the future, months down the road if I need cash, want to expand the company, ramp up operations for more rigs, or move to a new facility, I have the liquidity to be able to do so, yet I can still hold at least good chunk of my assets. To me that’s a powerful tool that’s going to add a lot to our company.

Yes, and actually my second loan would likely be a personal loan. I’m bullish in the market right now and believe the market has leveled off for the most part, which triggers the trader signal in me for a green light to reduce margin calls and to be optimistic on long range trends for the value of my cryptocurrency.

First of all, it’s important to do your due diligence, but I’d recommend going to SALT because they have a professional team and are an excellent company overall. They don’t waver in their terminology, and they’re good at communicating. Most importantly, they have excellent customer service — you can get ahold of them at any time.

There are a lot of scams out there, and there are a few lenders I would be careful of because they don’t have insurances in place if something were to happen to their lending solution. Knowing SALT has insurance is what gives me the confidence to take out a loan because at the end of the day I know they’re making sure to be extra cautious for their customers and that they have my best interests in mind. Additionally, security is number one, and I feel confident that SALT has an extremely secure platform, they have built their products on chain. SALT has developed their own tech stack, obtained their own licenses in the US and abroad, and they have an absolutely awesome SALT app on their phone that allows me in a blink of an eye to view and manage my assets via Smartphone 24/7/365. Through this ownership of these assets they have built, it allows them to really offer solutions to future clients that can grow in the foreseeable future. These aspects combined with their fast response time is why I would recommend them to someone looking for a crypto-backed loan. I’ve had experiences with other lenders and relatively speaking, they’ve been a little slow to get back to me. Given this is the 21st Century, I like things to be fast.

  1. I love the automated margin call system. It enables me to be hands-off, so I don’t have to worry about checking my loan every single day. I’m a very busy person, as I’m currently running two businesses and have a wife and kids. I don’t want to be checking my computer every day for my LTV, so to me the automated margin system alone is worth choosing SALT — time is money.
  2. It’s extremely easy to apply for a loan. It took me just a few minutes to slide the scale over and figure out how much collateral I wanted to use and then two minutes to complete the application process. SALT responded quickly to me after I submitted the application.
  3. The platform is simple. It’s clean, and there’s not a lot of jargon to comb through, which makes it significantly easier to go through the loan process.

One thing I think might be hard for people to understand and may prevent them from taking out a loan is that at this point, it takes a lot of collateral to back your loan — potentially more than the average person would expect. However, what’s important to understand is that it’s an emerging market and SALT has a certain level of responsibility to its investors and lenders, so overcollateralization of your loan is a necessary precaution for the time being. They’ve compensated for this recently by coming out with new, ridiculously good interest rates.

I would choose Dash — I think it’s a no-brainer. Dash has great market penetration right now — it has a strong following and is a no-nonsense coin. I also think Zcash would be another decent choice, as it is garnering quite a bit of adoption currently as well.

SALT CEO Bill Sinclair responds to Binance delisting

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Binance announced yesterday that it delisted SALT Memberships from its asset exchange. Binance’s announcement and action came as a surprise to SALT as we did not receive any information requests or opportunity to refute the inferences in Binance’s announcement. SALT adamantly objects to Binance’s announcement which provides the basis for which it delists a token but does not make any specific allegation against the list of companies, thus creating false negative implications.

Binance has not requested any information from SALT to enable Binance to make a decision relating to its now publicly listed criteria and acted irresponsibly in insinuating that any of the criteria is true of SALT.

SALT would like to take the opportunity to reaffirm our commitment to you, our products, and the blockchain industry. We sell SALT Membership units and offer refunds when they are purchased directly from us and not removed from our platform. This has been the preferred method of buying our Membership units since inception. A number of exchanges, including Binance, have made hundreds of thousands of dollars in fees by reselling our Membership units. SALT has never profited directly from any third party exchange activities. SALT Membership units have always been the primary vehicle for utility on our platform and we are committed to the expansion of this utility as our business grows. Today there are millions of SALT Membership units held on our platform by thousands of members.

SALT is a team of over 70 passionate, dedicated employees and professionals around the globe. We are proud to have the best customer support team in the business responding to phone, email and social media requests around the clock. Among our many employees is our talented and dedicated team of developers who have committed over 18,277,688 lines of code across dozens of software services in the year 2018 alone.

Additionally, SALT is continually enhancing its communication and today operates through a number of public channels including the following:

SALT has not and does not engage in fraudulent or unethical activity nor have we suggested publicly, without evidence or context, that any other company has done so. Binance never responsibly contacted SALT regarding any due diligence inquiries.

SALT is committed to responsible business practices. We pride ourselves on engaging with our customers, partners, regulators, and the media when it comes to requests for information.

We are dedicated to advancing blockchain technology and to building a healthy and sustainable crypto ecosystem. Two of our co-founders serve as members and advisors to groups that share a similar goal. These include the Organisation for Economic Co-operation and Development (OECD) and the Colorado Council for the Advancement of Blockchain Technology, created by Governor Hickenlooper. Additionally, we are an active member of The Digital Chamber of Commerce and frequently sponsor events that drive awareness and adoption of blockchain technology globally such as the Asia Blockchain Week, North American Bitcoin Conference and ETHDenver.

At SALT, we define success not by the number of exchanges on which we are listed, but by our efforts to help shape this new economy. We remain focused on product development and driving awareness and adoption of blockchain technology. Our goal is to provide our customers with the products and services they need to participate in the blockchain space. One of our core values, integrity, is matched only by another of our core values, grit. We will continue to work tirelessly to deliver outstanding products and services, and will not be moved off that mark by anyone, for any reason.

Thank you for your continued support, as together we remain focused on building a successful software services and lending enterprise.

Bill Sinclair

Interim President & CEO and Chief Technology Officer

SALT

Year in Review 2018

2018 was quite the year for SALT.

Between two public product launches, 32 event appearances, and the addition of new collateral types and jurisdictions, there’s no doubt we’ve accomplished a lot this year. When reflecting on how we did it, a few factors come to mind.

For one, we drank a ton of coffee (not literally but it was a lot) and even more La Croix. We also communicated a lot more — not only with each other, but with our community.

And most importantly, we grew. Not just in terms of our jurisdictions and team members but also in terms of our brand and vision.

For SALT, 2019 will be the year of expansion.

We know that crypto-backed lending is at our core and we’re proud of the business we’ve built. As we continue to maintain and grow our lending business, we’re also excited to expand our financial offerings to include products beyond lending.

On top of that, we believe in fostering the adoption of blockchain technology and that means making it more accessible. Right now, the use of this emerging technology seems to be limited to those who are experts in the blockchain space. We’re solving for this by developing a suite of applications that will enable businesses of all sizes — whether they are already in the blockchain space or are looking to enter it — to leverage this technology in a way that benefits them and their customers.

In 2019 we are focused on further building out these two components of the business and we’re excited for what that means for our company, you, and the future of finance.

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Loan to Value (LTV) Explained

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When you apply for a traditional loan, the lender uses your credit score, as reported by third-party credit agencies, to determine your credit worthiness or financial “reputation.” The higher your credit score, the lower the risk. To offset your credit score or in some cases even completely remove it from the equation, you can apply for an asset-backed loan. With this type of loan, you can offer up your assets — anything from your house or car to your stock portfolio — as collateral to act as “insurance” for the lender. In asset-backed lending, borrowers typically secure loans for an amount that’s less than the total value of the collateral.

The measurement of the balance of the loan relative to the value of the collateral asset is represented as loan-to-value or LTV. For example, you may have a loan for $320,000 for a home that is valued at $400,000, in which case your loan is 80% of the total value of the home.

As an asset-backed lender, one of the things that makes SALT unique is that we don’t even look at your credit score. With a SALT loan when you have collateral — whether you’re unbanked, haven’t accumulated credit, or have poor credit — you can still get a loan. Instead, SALT uses loan-to-value of your collateral to assign risk. As LTV is a measure of risk, the lower the LTV, the lower the risk for the lender (and therefore the lower the interest rate for the borrower).

How is LTV calculated?

Good question.

LTV is calculated as the loan amount in USD divided by the value of the collateral in USD, expressed as a percentage.

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As an example, if you have a current loan balance of $100,000 and your total collateral asset balance is $200,000, you have an LTV of 50%. To make things easier, we’ve added an LTV Helper to the borrower portal that illustrates exactly how the LTV is calculated. See below.

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Understanding LTV and how it’s calculated is essential to making an informed decision about your loan terms. Liquidation events benefit no one, which is why we provide the tools like our automated notification system to help you avoid them. Before you apply for a loan, you should ask yourself:

  • How much do I need?
  • How much total crypto do I have?
  • Am I prepared to deposit more crypto if necessary to lower my LTV?

Once you answer these questions, you can choose the LTV that’s right for you.

Starting LTV

When you are taking out a loan against your crypto assets with SALT, you presently have 3 options for your starting LTV; 30%, 40% and 50%. The starting LTV will determine approximately how much (in terms of dollars) of the crypto asset you will need for that loan.

From the example above, for a $100,000 loan, you would need $200,000 in Bitcoin, Ether, Doge, or Litecoin to secure the 50% LTV loan option. For a 40% LTV, it would be $250,000 and for 30% LTV, it would be approximately $333,333.

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Using LTV as a measure of risk, the 30% LTV option is the lowest risk.

Why is a lower LTV seen as less risk?

As the LTV goes up, the value of the underlying asset goes down. In the case of a crypto asset-backed loan, the value of Bitcoin, Ether, Litecoin, or Doge is trending down.

If the price of the crypto asset falls too low, the LTV will continue to increase. As it approaches 100%, there is a threshold where the collateralized asset will be sold to pay back the loan. This is known as the liquidation threshold. This threshold can vary from business to business and loan to loan.

For our example, let’s say the liquidation threshold is set to a 90% LTV.

When the LTV ratio reaches 90%, the crypto asset will be sold to reduce the LTV back down.

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Timeout. Liquidations!?!

At SALT, we pride ourselves in having a robust notification system that relays important account activity to borrowers via our portal, text, phone calls, and emails. We give you control of how you want to be notified about each activity. You can be notified of everything from deposits and withdrawals to LTV warning thresholds.

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As a borrower, you always have the option to transfer more collateral at any time.

Back to LTVs.

Why does this matter?

As you might be aware, the price of Bitcoin (or any crypto asset) can move up and down. As the price moves up, your LTV goes down. As the price moves down, your LTV goes up.

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To build on our earlier example of a $100,000 loan with a 50% LTV, let’s use Bitcoin as the underlying crypto asset. In this example, let’s use $4,000 as the US dollar price of 1 Bitcoin.

Loan Amount = $100,000

Starting LTV = 50%

Price of 1 Bitcoin = $4,000

Doing the math $200,000/$4,000, you would need approximately 50.00 BTC to get a $100,000 loan with a 50% starting LTV.

Bringing it all together!

From above, assuming the liquidation threshold is set at 90% LTV, the price of 1 Bitcoin would need to go all the way down to approximately $2,222 to raise the LTV up to the liquidation threshold of 90% LTV.

A $100,000 loan with a starting LTV of 40%, would require 62.50 BTC at a price of $4,000 per Bitcoin. However, the 90% liquidation threshold would not be reached until the price of 1 Bitcoin went down to approximately $1,778.

Repeating the example with a 30% LTV, you would need 83.33 BTC at a price of $4,000 per Bitcoin and would reach the 90% liquidation threshold when the price of 1 Bitcoin was approximately $1,333.

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STABILIZE IT

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Today we’re proud to announce a partnership with CENTRE Consortium to accept USD Coin (USDC) as collateral.

A product of a collaborative effort between, Coinbase, Circle, and the CENTRE Consortium, USDC is a new stablecoin backed by the US dollar. According to Coinbase, “One USDC is a 1:1 representation of a US dollar on the Ethereum blockchain” and “each USDC is 100% collateralized by a corresponding USD held in accounts subject to regular public reporting of reserves.” From a credibility standpoint, Circle has partnered with accounting firm Grant Thornton LLP to conduct monthly audits of US dollar reserves backing the number of USDC tokens in circulation.

Why add USDC?

We’re constantly evaluating and analyzing new collateral options to determine how a given collateral will benefit our customers. Typically, we base our decision to add a new collateral type on a number of factors including the voting feature on our borrower portal. In this case however, we deliberately chose to add USDC in direct response to the market volatility we’ve recently experienced.

When there’s volatility in the market, it directly impacts your LTV, which can result in an undesired loss of collateral. We’ve heard your feedback regarding the need for transfer options that can be implemented on nights, weekends, and holidays. We’re adding USDC to the mix because we want you to keep your crypto, markets don’t.

By adding USDC we’re providing a quick, easy way for you to stabilize your LTV when there’s a rapid drop in the market. Given it’s backed by the US dollar but isn’t wholly tied to the U.S. banking system, you can transfer USDC as collateral at any point in time to bring your LTV back down. Now, rather than waiting for the bank to open to lower your LTV with a wire transfer, you can take immediate action when you notice your collateral is declining in value due to market volatility.

With the addition of USDC, SALT now offers loans backed by Bitcoin, Litecoin, Ethereum, DOGE, and USDC — you can secure a loan backed 100 percent by a single collateral type or combine them in a way that works for you.

Interested in applying for a loan? Sign up here. Or visit saltlending.com to learn more about SALT’s offerings.

Read more about the USDC Ecosystem.

California, Here We Come

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We’ve been California dreamin’ for a while now and guess what? It’s no longer a dream. That’s right. As of today, we’re officially checking into the Hotel California.

310? 415? It doesn’t matter. We love L.A. And we love the Bay. And it’s not just because the West Coast has the sunshine and the best waves. We surf, too, but like, on the Web.

Whether we’re driving down the 101 or the 99 (we’re here for you CenCal), at SALT we’re always cruising. But mostly we keep on growing. Between the addition of D.C. last week and California this week, we’re making Blockchain-Backed Loans™ accessible to a lot more businesses and a lot more people — in California’s case, 39 million more people.

We’ve heard somewhere before that you all know how to party… in that case, we’re hella stoked to serve you.

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Visit saltlending.com to apply for a loan.

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