Goldman Sachs’ entry into the bitcoin-backed loan market is sending ripples across the industry and marks a turning point for the industry in aspects of liquidity, legitimacy, and customer choice.
As the Wall Street powerhouse expands its Bitcoin operations, Goldman has apparently launched its first ever loan facility backed by Bitcoin.
The arrangement, which has gained popularity in the Bitcoin market in recent years thanks to emerging organizations, allows a bitcoin owner to get fiat money such as US dollars by pledging their BTC as collateral to the bank. If the value of bitcoin falls, the client may be obliged to raise their collateral, and if they do not, they risk being liquidated.
For the first loan, the Wall Street behemoth loaned cash backed by bitcoin possessed by the borrower, according to a bank spokesperson. The agreement appealed to Goldman because of its framework and 24-hour risk management, she said in an email to Bloomberg.
Bitcoin investors have frequently used the strategy to enhance their holdings when the digital currency’s price falls. Based on the idea that Bitcoin’s decade-long price increase will persist in the future, the customer opts to obtain more bitcoin with credit rather than paying with their own money.
Another application for this type of financing is for making purchases. A bitcoin holder can utilize a bitcoin-backed loan to pay for products or services with cash instead of selling their bitcoin — for instance, to purchase a home or cover medical costs. Not only would the consumer retain their bitcoins (as long as they repay the loan whenever it expires), but they also avoid the tax consequences of selling them.
Bitcoin-backed loans have also grown attractive among bitcoin mining industry, which generate revenue in BTC but must cover operational costs in US dollars or other currencies. Miners used to liquidate a portion of their bitcoin to fund expenditures, but in recent years, big players in the business have become more interested in seeking out cash loans using their bitcoin assets.
Goldman Sachs’ entry into the bitcoin-backed loan market marks a turning point for the industry in aspects of liquidity, legitimacy, and customer choice. The loan’s specifics were not reported by Bloomberg.