Goldman Sachs has offered its first Bitcoin- (BTC)-backed loan, in a major step forward for institutional cryptocurrency adoption on Wall Street.
A spokeswoman from Goldman told Bloomberg that the multinational investment bank had lent cash collateralized by Bitcoin owned by the borrower for the first time in Goldman Sachs’ history. She added that the deal was particularly interesting because of its structure and 24-hour risk management.
Such a loan allows for a Bitcoin holder to borrow fiat currency such as the United States dollar by fronting up to their BTC as collateral to the bank. The underlying volatility of Bitcoin can make these loans risky — if the price of Bitcoin drops too far, the borrower may be required to increase their collateral. Otherwise, they risk getting liquidated.
Last month, Goldman, which now sports its own in-house digital assets team, executed their first over-the-counter crypto transaction in collaboration with the trading unit of Michael Novogratz’s crypto investment firm, Galaxy Digital.
Goldman is not alone in its foray into digital assets, with fellow Wall Street banks ramping up their movements into the cryptocurrency space as well.
On Wednesday, multi-trillion-dollar asset management firm BlackRock announced the launch of a blockchain-focused exchange-traded fund (ETF). Earlier this month, the firm also announced its involvement in a $400M funding round and partnership with Circle, the principal operator of the USD Coin (USDC) stablecoin.
While overcollateralized crypto-backed loans have been a staple in the world of decentralized finance (DeFi) for some time, the crypto-collateralized loan is becoming an alternative method for institutions and governments looking to gain increased access to capital.
Yesterday, blockchain real estate platform Propy announced a partnership with Abra to offer its customers access to home loans using cryptocurrency holdings as collateral. On Wednesday, a new homeowner purchased an apartment in Austin, Texas, using a platform called USDC.homes. The deposit was staked crypto, and the mortgage was undercollateralized and based on the applicants’ credit score.
El Salvador is currently in the process of securing finances for its volcano bond; a Bitcoin-backed government bond that will be used to amass $1 billion in funding for the development of Bitcoin City and to increase the size of the country’s BTC reserves.