Goldman Sachs Utilizes Coinbase for Bitcoin Backed Loan

Goldman Sachs experiments with Bitcoin-related products and services as it partners with Coinbase.

Chung Yee
May 9, 2022

Bringing Crypto Mainstream

Goldman Sachs, one of the leading investment banks in the world, offers a Bitcoin-backed loan as it partners with Coinbase to tap into new liquidity. Borrowers can now obtain cash loans by collateralizing their Bitcoin. ,

Bloomberg News was the first to announce the inaugural move by a major US bank, further exposing institutional banking to the capabilities of crypto and blockchain tech. A Goldman Sachs spokeswoman addressed the development in an email to Coindesk, featured in an April 28 article by Brendy Betz:

“We recently extended a secured lending facility where we lent fiat collateralized on BTC; BTC being owned by the borrower. The interesting piece for us was the structure and the 24-7-365 day risk management.”

The bank’s foray into the crypto space and its willingness to recognize Bitcoin as collateral is a vote of confidence for the top crypto asset by market cap. In the past, banks and financial institutions were generally reluctant to recognize crypto assets as collateral for its loan because of the crypto asset’s inherent volatility. 

Source: Goldman Sachs has been taking positive steps by venturing into the crypto space through Bitcoin 

Recognized Asset Class 

Crypto assets are generally accepted as good collateral in Decentralized Finance (DeFi) protocols. The traditional institutions are slow to accept crypto assets as a form of security for its loan based on a few reasons. 

Source: Global assets by market capitalization in 2021

First, crypto is a new asset class that has a market capitalization of $1.58 trillion. Compared to other more established asset classes, such as gold—which has a market capitalization of $11.799 trillion—the depth of liquidity is limited. 

Secondly, crypto is regarded as a volatile asset, making it unsuitable to be used as security. Therefore the leap of faith by Goldman Sachs in recognizing Bitcoin as good collateral marks a major shift in perception. 

Gearing Up for Change 

Goldman Sachs has been embracing the change brought about by crypto assets. The bank has a dedicated digital assets team and traded its first over-the-counter (OTC) Bitcoin options to Galaxy Digital recently. 

Other financial institutions are also preparing themselves by establishing their own digital asset unit. Blackrock, the global leader in investment, advisory, and risk management solutions, recently participated in a $400 million funding round for Circle, the creator of $USDC, the second-highest market capped stablecoin

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance. His largest crypto holdings are Solana, Ethereum, and BNB Token.

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