A 15.17-point lag in the second collateral tests a BTC-set liquidation trigger
Should the lender widen the liquidation headroom on ETH-backed loans after this week's divergence, or keep a single margin schedule derived from BTC's own moves?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 11 November 2024, BTC gained 11.80% to close 89,855.99, only 3.20% below its 52-week high, after a best day of 10.30% and a worst day of -3.37%; its largest one-hour fall was -2.83%, realised volatility ran at 68.5% annualised, and dollar volume was 3.1 times the prior 12-week average. An illustrative lender sets liquidation triggers from BTC's own moves and accepts ETH as secondary collateral, but ETH lagged BTC by 15.17 percentage points, a -13.57% move in the ETH/BTC ratio at 0.78 correlation.
Judgment
BTC collateral needed no wider trigger this week: its worst hour of -2.83% and worst day of -3.37% sit well inside the 16.27% range, and price closed near the top of that range. Keep BTC margin and trigger unchanged. Fix the ETH schedule instead: at 0.78 correlation with a 13.57% ratio decline, ETH coverage can breach while BTC barely moves, so ETH triggers must be set from the divergence, not from BTC's moves. Accept the lost loan volume from the stricter ETH terms.
What would change it
If the ETH/BTC ratio settles within a few percent of this week's level over several subsequent weeks, the extra ETH headroom can be released. If BTC posts an hour worse than -2.83%, its own trigger must be widened too.
What sets this case apart
The failing leg is the secondary collateral's relative move, not the primary asset's volatility, so one shared margin schedule is the error.