The first-ever lending facility by Goldman Sachs Group Inc. and one that is backed by Bitcoin is the recent effort by Coinbase Global Inc. which is one of the better-known crypto exchanges so that money can be brought in from Wall Street.
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As Coinbase is working with Goldman, it is the first step or beginning of a recognition of crypto being used as collateral, which further deepens and bridges the gap between the fiat economies and crypto economies, as per a statement that has been made by Brett Tejpaul, who is the Coinbase International head. However, no further details of the loans were provided by the company. According to a spokesperson at Goldman Sachs, last week there was collateralization of the loan by Bitcoin earlier owned by an undisclosed borrower.
Bloomberg News reports that loans that are backed by Bitcoin are not new in the digital currency segment. Some crypto natives put up their machines as collateral so that they could borrow cash.
Such borrowers have been found to usually post Bitcoin to loan to value in the range of 40% and 60%, according to Matthew Ballensweig, who is the managing director and co-head of trading of lending at crypto prime brokerage Genesis. A qualified custodian holds the collateral, and the borrowers receive US dollars from the creditor at an interest rate that is agreed upon previously,
As of the end of last year, more than $566 million of cryptocurrencies which also included more than $183 million worth of Bitcoin, as per the 2021 annual report. Simultaneously, the company reports that it has cash and equivalent cash of $7.1 billion, excluding that of restricted cash and the customer custodial funds.
Ballensweig of Genesis says that the firm already has loans that are structured with crypto-friendly banks like that Silvergate Bank and Signature Bank.
Bilateral agreements of this type are seldom done in a vacuum, as per a report that has been published on Monday related to crypto hedge fund Arca, it is quite likely that Goldman is witnessing a lot of demand for this kind of transaction and is testing the waters before it decided to make a bigger splash.
Bloomberg News reports that Goldman stated to Bloomberg earlier that it was an interesting deal for the bank due to its structure and round-the-clock risk management. There was the trading of the bank’s first-ever counter Bitcoin option in March. Other banks on Wall Street like the Jefferies Financial Group Inc have started carrying out experiments as well with crypto-related services and products.
