Bitcoin-Backed Loans Offered for First Time by Goldman in Coinbase Partnership

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Last week, Goldman Sachs offered its first-ever lending facility, backed by Bitcoin, as Bloomberg reported, in a move that reflects the increasing institutional adoption of the digital asset. Now, the publication reported that the investment bank’s client for the loan is Coinbase, a development widely acclaimed in the industry.

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“Coinbase’s work with Goldman is a first step in recognizing crypto as collateral that deepens the bridge between the fiat and crypto economies,” Brett Tejpaul, head of Coinbase Institutional, told Bloomberg.

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According to the company’s annual report, as of December 31, 2021, Coinbase had $566.5 million in crypto, including $183.4 million in Bitcoin.

GOBankingRates contacted both Coinbase and Goldman Sachs.

Jae Yang, CEO of Tacentold GOBankingRates that it’s easy to see how such a product offering surprises people, given that just a few years ago, major financial institutions were very negative about almost everything to do with crypto.

“But that has certainly changed with the flow of institutional money coming into the space, and it certainly makes sense for Coinbase to be involved,” Yang said. “You could describe Coinbase as the OG of crypto exchanges, and the level of expertise the company has is just tremendous. So it’s no surprise, if you look at this development from such a lens, that Goldman would draw on Coinbase’s expertise.

According to Yang, crypto collateral lending will soon become a huge industry here.

“We’re already seeing lenders looking to use Bitcoin as collateral for mortgages, and it makes sense because, as many have argued, Bitcoin is both digital gold and pristine digital collateral. Michael Saylor of MicroStrategy has been using Bitcoin this way for over a year. And many others follow his lead. This will be a huge market for Goldman,” Yang added.

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In a report released on May 2, crypto firm Arca said that while details of the loan are scarce, it demonstrates the willingness of institutions to adopt new tools with old techniques.

“These kinds of bilateral agreements are rarely made in a vacuum; it’s much more likely that Goldman sees a lot of demand for these types of transactions and just tests the waters before making a bigger splash,” the report said.

Goldman told Bloomberg that the deal was interesting for the bank because of its structure and 24-hour risk management.

Garry Krugljakow, founder and CEO of GOGO protocolexplained to GOBankingRates that the move will lead to a flood of traditional institutions to follow.

“This is also a huge market opportunity for Coinbase to become a top player in this type of product offering. Going forward, given how fast this space is evolving, I think DeFi protocols will play an increasingly prominent role in such collateralised loans,” he said.

Krugljakow added that Bitcoin is the springboard — as evidenced by how much MicroStrategy and other companies have bought to bolster their balance sheets — but it will soon become apparent to Wall Street that DeFi’s sheer functionality will be “too tempting to pass up.” upwards.”

“In DeFi, the collateral can be offered in a way that provides lending markets various forms of return. And the fact that you don’t have to sell your coins in all of this is just a huge potential plus. People don’t want to take out a second mortgage on their homes — it’s much more useful to use Bitcoin and other crypto assets for these types of utilities,” he said.

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In March, and also as an industry first, Goldman Sachs announced that it had completed its first over-the-counter (OTC) cryptocurrency transaction with Galaxy Digital, reflecting the bank’s continued expansion of crypto offerings and demonstrates continued maturation and adoption of digital assets by banking institutions.

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About the author

Yael Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including: Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major New York City financial firms, including New York Life and MSCI. Yael is now a freelancer and most recently co-authored the book “Blockchain for Medical Research: Accelerating Trust in Healthcare”, with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in journalism from New York University and one in Russian studies from Université Toulouse-Jean Jaurès, France.

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