- Volatility of Bitcoin expected to make loans risky.
- Goldman has its own digital assets team.
- In March, Goldman initiated its first over-the-counter (OTC) crypto transaction.
American multinational investment bank Goldman Sachs has offered its first bitcoin-backed loan. The new arrangement enables a bitcoin holder to obtain fiat money like the U.S. dollars by putting up their BTC as collateral to the bank.
Goldman Sachs has lent cash collateralized by bitcoin owned by the borrower for the first time, a spokeswoman for the bank told the media. She added that the deal was interesting to Goldman taking into account its structure and 24-hour risk management.
The new arrangement by the Wallstreet giant, however, comes with its own set of troubles. The underlying volatility of Bitcoin can make these loans a tad bit risky — if the price of bitcoin drops too far, the borrower or user may be required to increase their collateral, otherwise, they risk getting liquidated.
In March 2022, Goldman, which now has its own in-house digital assets team, executed its first over-the-counter (OTC) crypto transaction in partnership with the trading unit of Michael Novogratz’s crypto investment firm Galaxy Digital.
Apart from Goldman, several other Wall Street banks are also ramping up their movements to enter the cryptocurrency and digital assets space. For Goldman, the offering of its first Bitcoin-backed loan signals a foray into a new business line that’s currently the domain of firms and companies more specialized in crypto.
BlackRock Inc. joined a $400 million funding round in stablecoin firm Circle this month, while Jefferies Financial Group Inc. is currently expanding banking services for crypto clients. Boutique investment bank Cowen Inc. also made headlines when it started a digital assets unit in March. Some of the crypto-related products and services already offered by Wall Street include trading and investment banking and wealth management.
Damien Vanderwilt, co-president of Galaxy Digital Holdings, recently said that lending to companies that provide virtual currencies as collateral is the next step.
While overcollateralized crypto-backed loans have been a key element in decentralized finance for quite some time — the crypto-collateralized loan is slowly becoming an alternative method for governments and institutions looking to gain increased access to capital.