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Goldman Sachs has offered the first loan backed by Bitcoin, in a major step forward for the adoption of the cryptocurrency held on Wall Street.
The multinational investment bank has been lending cash mortgaged by Bitcoin (BTC) owned by borrowers for the first time in Goldman Sachs' history. This is considered a particularly interesting deal because of its structure and 24-hour risk management process.
Such a loan allows Bitcoin holders to borrow fiat money such as U.S. dollars, by pre-applying their BTC as collateral for the bank. Bitcoin's underlying volatility could make these loans risky – if the price of bitcoin falls too far, borrowers may be asked to increase their collateral, otherwise they risk liquidating the loan.
Last month, Goldman — the investment bank dubbed the No. 1 On Wall Street — now has its own internal digital asset team that conducted its first OTC transaction in collaboration with the trading unit of Michael Novogratz's cryptocurrency investment firm Galaxy Digital.
Goldman is not alone in its foray into digital assets, as fellow Wall Street banks have also stepped up their forays into the cryptocurrency space.
On April 27, trillion-dollar asset management firm BlackRock announced the launch of a blockchain-focused ETF. Earlier this month, the company also announced its participation in a $400 million funding round and partnered with Circle, the main operator of the USDC stablecoin.
While over-mortgage-backed loans have been a staple in the decentralized financial world (DeFi) for some time, crypto mortgage loans are becoming an alternative method for institutions and governments looking to increase access to capital.
On April 28, blockchain real estate platform Propy announced a partnership with Abra to give customers access to home loans using cryptocurrencies as collateral. On April 27, a new landlord purchased an apartment in Austin, Texas, using a platform called USDC.homes. Deposits have been wagered as cryptocurrencies, and the mortgage has been collated and based on the applicant's credit score.
El Salvador is currently in the process of securing financing its Volcano bond. A government bond backed by Bitcoin will be used to accumulate $1 billion in funding for the development of the "Bitcoin City" and to increase the size of the country's Bitcoin reserves.
