In the latest signs that Wall Street is moving towards cryptocurrency, Goldman Sachs has successfully offered its first Bitcoin-backed loan.
The secured lending facility lent cash collateralised by Bitcoin owned by the borrower, a spokeswoman for Goldman Sachs said.
“We recently extended a secured lending facility where we lent fiat collateralized on BTC; BTC being owned by the borrower,” a Goldman spokeswoman told CoinDesk in an email. “The interesting piece for us was the structure and the 24-7-365 day risk management.”
A Bitcoin-backed loan has been made popular by newer companies over the past few years in the Bitcoin industry, enabling Bitcoin holders to obtain fiat money like AUD or USD by putting up their Bitcoin as collateral to a bank. In the case of Bitcoin dropping, the user in the arrangement may be required to increase their collateral, or else they will risk getting liquidated.
These types of arrangements have also become popularised among Bitcoin mining companies. These companies earn revenue in BTC through their mining operations, but need to pay for their operational costs in AUD, USD or other currencies. Throughout the years, miners would more often than not just sell off some of their mined BTC to cover these operational expenses, however over the last few years some big names in the industry have turned to taking out cash loans with their Bitcoin holdings.
The loan type is also popular for making purchases. A user with a Bitcoin-backed loan can pay for goods and services of any kind with cash, such as buying a house or car, without needing to sell off any of their Bitcoin holdings. Not only does this allow an individual to HODL their Bitcoin (given they repay the loan when it matures), but also allows them to avoid the capital gains tax implications of having to make a Bitcoin sale.
Goldman Sachs’ entrance into the Bitcoin-backed loan industry represents a turning point for the industry in terms of optionality, legitimacy and liquidity available for consumers.
