Wall Street is testing Bitcoin as collateral: global banking giant Goldman Sachs has given its first crypto-backed loan. It is a major step toward the adoption of cryptocurrencies by established financial community because Bitcoin was viewed only as a speculative asset before.
Goldman Sachs allowed one of its customers to receive a cash loan backed by Bitcoin as collateral for the first time in its history. 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 because of Bitcoin’s volatility. If the BTC price drops too low, the borrower will have to increase the collateral to avoid getting liquidated.
Goldman Sachs is not the first one to “flirt” with the crypto world. Its fellow banks are also interested in moving toward 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. Private equity investment firm Apollo Global Management has recently hired former JPMorgan (JPM) executive Christine Moy to serve as its first head of digital assets strategy.
By the way, Goldman Sachs also said earlier in April that it is examining non-fungible tokens (NFT), particularly the “tokenization of real assets”. “We are actually exploring NFTs in the context of financial instruments, and actually there the power is actually quite powerful. So we work on a number of things,” Mathew McDermott, global head of digital assets at Goldman Sachs, said at the Financial Times Crypto and Digital Assets Summit.
Perhaps it’s time even for national banks to consider Bitcoin as a reserve? Seems that they are also thinking about it from time to time: “Buying bitcoin is not a problem for us, we can do that either directly or can buy investment products which are based on bitcoin,” The Swiss National Bank Chairman Thomas Jordan said at the SNB’s annual meeting. “We can arrange the technical and operative conditions relatively quickly, when we are convinced we must have bitcoin in our balance sheet.”