Goldman Sachs Offers First Bitcoin-Backed Loan, Wall Street Embraces Crypto

Goldman Sachs has offered its first bitcoin-backed loan, a major step toward adoption of cryptocurrencies among Wall Street institutions.

For the first time in Goldman's history, the multinational investment bank lent cash against borrowers' own bitcoins as collateral, a Goldman Sachs spokesperson told Bloomberg. The deal is particularly interesting because of its structure and 24-hour risk management, she added.

The loan allows bitcoin holders to borrow fiat currencies such as U.S. dollars by prepaying bitcoin as collateral to banks. Bitcoin’s potential volatility could make these loans risky — if the price of Bitcoin drops too much, borrowers could be required to increase their collateral, or they risk being liquidated.

Last month, Goldman Sachs partnered with the trading arm of Michael Novogratz’s crypto investment firm Galaxy Digital to execute their first over-the-counter (OTC) cryptocurrency trade. Goldman Sachs now has its own in-house digital assets team.

Goldman Sachs is not the only bank to venture into digital assets, and other Wall Street banks are also stepping up their moves into the cryptocurrency space.

On Wednesday, multi-trillion dollar asset manager BlackRock announced the launch of a blockchain-focused ETF. Earlier this month, the company also announced participation in a $400 million funding round and a partnership with Circle, the main operator of the USDC stablecoin.

Overcollateralized crypto loans have been popular in the decentralized finance (DeFi) space for some time — and crypto-backed loans are becoming an alternative for institutions and governments looking to secure more capital.

Yesterday, blockchain real estate platform Propy announced a partnership with Abrato to offer its customers home loans using cryptocurrencies as collateral. On Wednesday, a new homeowner bought an apartment in Austin, Texas, using a platform called USDC.homes. The security deposit is in cryptocurrency, and the applicant gets an unsecured loan based on their credit score.

El Salvador is currently raising funds for its Volcano Bond; a bitcoin-backed government bond that will raise $1 billion for the development of “Bitcoin City” and expand the country’s bitcoin reserves.

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