Goldman Sachs starts first-ever Bitcoin-backed lending service

The move is an important step for the global financial sector as Wall Street continues to embrace digital assets. The secured lending facility lent cash collateralized by Bitcoin owned by the borrower.

A spokeswoman for Goldman Sachs noted that ”the deal was interesting to Goldman because of its structure and 24-hour risk management”, as per a report in Bloomberg.

For Goldman, which traded its first over-the-counter Bitcoin options in March, the step solidifies its entry into a new business line that’s currently dominated by more crypto focused companies. 

Bitcoin-backed loan

With a bitcoin-backed loan, a bitcoin holder can pay for goods or services with cash – for example, to buy a house or pay medical bills – without needing to sell their bitcoin. Not only does the user keep their bitcoin stash (provided they pay out the loan when it matures) but they also don’t have to worry about tax implications from a BTC sale.

Bitcoin-backed loans have also become popular among bitcoin mining companies, which earn revenue in BTC but need to pay for their operating costs in U.S. dollars or other currencies. Historically, miners would sell part of their produced bitcoin to cover expenses, but over the past couple of years big players in the industry have grown fond of taking out cash loans with their bitcoin holdings.

Historical moment for crypto

Apart from Goldman Sachs, other investment banks have been taking steps toward crypto market.

Jefferies Financial Group is expanding banking services for crypto clients, while BlackRock Inc. has joined a $400 million funding round in stablecoin firm Circle this month. Boutique investment bank Cowen Inc. too, started a digital assets unit in March 2022, as per Bloomberg.

Goldman has been one of cryptoassets’ top leading companies on Wall Street, having re-launched its trading desk for such assets in spring 2021 after an initial 2018 run.

The bank also provides clients with regular research and insights into the sector, while Goldman’s strategic investment unit is taking stakes in associated startups.

Goldman’s entrance into the bitcoin-backed loan business represents a historical moment for the industry in terms of liquidity, legitimacy and optionality available for consumers.