Goldman Sachs rolls out first bitcoin-backed loan

Goldman Sachs and other Wall Street moguls show signs of increased interest in cryptocurrencies

Published: Apr 29, 2022 03:51:47 PM IST

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Global investment banking giant Goldman Sachs has given its first bitcoin-backed loan to a borrower, and the move is being touted as a major step toward institutional adoption of cryptocurrencies by Wall Street. Last month, Goldman Sachs successfully traded its first over-the-counter bitcoin options to Galaxy Digital.

Goldman Sachs allowed one of its customers to receive a cash loan backed by Bitcoin as collateral for the first time in its history. The loan was granted by the secured lending facility of the bank.

A bank spokesperson said in an email, “We recently extended a secured lending facility where we lent fiat collateralized on BTC; BTC being owned by the borrower. The interesting piece for us was the structure and the 24-7-365 day risk management.”

The bitcoin-backed loan allows the BTC holder to present their BTC as collateral to the bank and borrow fiat currency such as the USD in return. Given its unique structure and 24-hour risk management, the loan is of particular interest to the banking giant. These loans can be riskier than regular asset-backed loans, given Bitcoin's volatility. If the BTC price drops too low, the borrower may have to increase the collateral to avoid getting liquidated.

There have been several other instances of a clear indication that Goldman Sachs’s fellow Wall Street banks are also ramping up their efforts to move into the cryptocurrency space. Last month, Cowen launched its own digital assets unit. The well-known asset management firm BlackRock announced its partnership with Circle, a leading operator of USDC stablecoin. The partnership included BlackRock’s involvement in a $400 million funding round with Circle.

BlackRock is also readying itself to launch its blockchain-focused ETF. Apollo Global Management, a major private equity investment firm, welcomed JP Morgan’s executive Christine Moy as the head of digital assets strategy.

Crypto-backed loans have already become ubiquitous in DeFi, but traditional institutions see crypto-backed loans as an alternative method to access increased capital.

The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash