Goldman Sachs has made its first bitcoin-backed loan, marking a significant step forward for Wall Street institutional cryptocurrency adoption.
For the first time in Goldman Sachs’ history, a spokeswoman for the multinational investment bank told Bloomberg, that the multinational investment bank had lent cash collateralized by Bitcoin owned by the borrower. She went on to say that the deal was particularly appealing due to its structure and 24-hour risk management.
A loan of this type allows a Bitcoin owner to borrow fiat currency, such as US dollars, by pledging their BTC as collateral to the bank. Because of the underlying volatility of Bitcoin, these loans can be risky — if the price of Bitcoin falls too far, the borrower may be required to increase their collateral. Otherwise, they have a risk of getting liquidated.
Goldman, which now has its own in-house digital assets team, completed their first over-the-counter crypto transaction last month in collaboration with Galaxy Digital, Michael Novogratz’s crypto investment firm.
Goldman is not alone in its foray into digital assets; other Wall Street banks are also increasing their presence in the cryptocurrency space.
BlackRock, a multibillion-dollar asset management firm, announced the launch of a blockchain-focused exchange-traded fund on Wednesday (ETF). Earlier this month, the company also announced a $400 million funding round and a partnership with Circle, the primary operator of the USD Coin (USDC) stablecoin.
While overcollateralized crypto-backed loans have long been a staple in the world of decentralized finance (DeFi), the bitcoin-backed loan is emerging as an alternative method for institutions and governments seeking increased capital access.
Propy, a blockchain real estate platform, announced a collaboration with Abra yesterday to provide its customers with access to home loans using cryptocurrency holdings as collateral. On Wednesday, a new homeowner in Austin, Texas, purchased an apartment through the USDC.homes platform. The deposit was made in cryptocurrency, and the mortgage was uncollateralized and based on the applicants’ credit score.
El Salvador is currently securing funds for its volcano bond, a Bitcoin-backed government bond that will be used to raise $1 billion in funding for the development of Bitcoin City and to increase the country’s BTC reserves.
To read our blog on “Cryptocurrency mortgages can be used to purchase homes in the US” click here.
