A Bitcoin-backed loan allows the asset holder to borrow fiat currency like Rupees or Dollars after fronting-up their BTC as collateral.
The amount of loan that was issued against Bitcoin remains undisclosed
Photo Credit: Coinbase
Last week, Goldman Sachs issued the first ever Bitcoin-backed loan to an ‘undisclosed' party in the US. Coinbase crypto exchange has emerged as the receiver of this loan. Brett Tejpaul, the head of Coinbase Institutional, informed about the development to Bloomberg. The deal is aimed at bridging the gap between fiat currencies as well as virtual assets including cryptocurrencies. Goldman Sachs is a Wall Street-backed investment bank. Goldman Sachs' facilitation of a Bitcoin-backed loan, in itself, testifies that the financial industry in the US is getting warmer towards the crypto sector.
Tajpaul has noted that this step from Goldman Sachs will bring crypto assets to the forefront of being considered as valuable collaterals alongside the existing ones like real estate and gold.
The amount of loan that was issued against Bitcoin as a collateral remains undisclosed by both the involved entities.
From what is known about this loan-provision, it comes with a 24-hour-risk management.
The underlaying volatility of BTC does make such kind of a loan fall under the risky category. Currently, each Bitcoin is priced around $41,700 (roughly Rs. 32 lakh) as per Gadgets 360's crypto price tracker.
In its latest report, institutional financial services firm Arca said that Goldman's experiment with its first Bitcoin-collateralised loan is a test before it makes a bigger move.
“These types of bilateral agreements are rarely done in a vacuum; it is far more likely that Goldman is seeing a lot of demand for this type of transaction and is just testing the waters before making a bigger splash,” the Arca report noted.
While the bank does not offer spot crypto trading services, it does offer access to crypto Exchange Traded Funds (ETFs) and options trade.
Goldman is also planning to offer over-the-counter (OTC) options trading for Ethereum to its clients.
At a time when Goldman is experimenting with Bitcoin-backed loans, suspicions around such actions have already begun to arise.
Rating agency Weiss Ratings, for instance, has recently warned that crypto-backed mortgages have ‘risk' spelled all around it.
According to the editor at Weiss Ratings, Jon D. Markman, lenders who allow people to use crypto to back a mortgage might be adding more risk to current market conditions, Bitcoin.com reported. Markman was keeping the housing loan sector in focus.
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