Goldman Sachs, one of the leading financial institutions on Wall Street, has announced the launch of a Bitcoin-backed loan product. The loan will allow Bitcoin to be used as collateral to secure loans in the Wall Street institution.
Goldman Sachs launches crypto-backed loan
In an interview with Bloomberg, a spokesperson from Goldman Sachs said that the Wall Street giant has issued a loan collateralized by Bitcoin for the first time in the bank’s history.
Goldman Sachs has interacted with cryptocurrencies before. However, this loan is an interesting development, given the volatility of Bitcoin that requires a 24-hour risk management structure.
A loan collateralized by Bitcoin allows a holder to borrow fiat currency such as the US dollar while using the Bitcoin they own as collateral to be submitted to the bank. The price of Bitcoin is highly volatile, and it tends to change regularly. Therefore, offering such loans tends to be risky for financial institutions.
To manage these risks, if the price of Bitcoin drops by a large margin, the borrower might be required to increase the collateral submitted to the bank. Failure to do this risks the loan being liquidated.
Crypto loans are already popular in the decentralized finance (DeFi) sector. However, they are yet to be adopted on a larger scale in the traditional financial sector. The recent action by Goldman Sachs could unlock utility for cryptocurrencies.
Crypto activities on Wall Street
Goldman Sachs partnered with Galaxy Digital, owned by Michael Novogratz, to complete its first over-the-counter cryptocurrency transaction in March. Other Wall Street institutions are also moving into the cryptocurrency space.
BlackRock, a leading asset management firm, recently announced it would launch an exchange-traded fund (ETF) focusing on blockchain. The firm also recently announced that it was involved in a $400M funding round for Circle, the issuer of the USDC stablecoin.
JPMorgan is also increasing its presence in the cryptocurrency sector. JPMorgan has a crypto and blockchain division. It recently announced the launch of the Onyx Lounge on the Decentraland metaverse for this division.
Propy, a blockchain real estate firm, announced its partnership with Abra to give its customers access to home loans while using digital assets as collateral. The adoption of cryptocurrencies in the real estate sector is also being witnessed in the UAE. DAMAC Properties, one of the region’s largest luxury real estate firms, recently announced it would accept Bitcoin (BTC) and Ether (ETH) in purchases.
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