Bitcoin-Backed Loans Offered for First Time by Goldman in Coinbase Partnership

Bitcoins placed beside Coinbase App on iPhone, illustrating one of the largest Bitcoin providers, photographed in Cologne, Germany, 14th of April 2021.
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Last week, Goldman Sachs offered its first ever lending facility backed by Bitcoin, as Bloomberg reported, in a move reflecting the increasing institutional adoption of the digital asset. Now, the publication reported that the investment bank’s client for the loan is Coinbase, a development widely lauded in the industry.

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“Coinbase’s work with Goldman is a first step in the recognition of crypto as collateral which deepens the bridge between the fiat and crypto economies,” Brett Tejpaul, head of Coinbase Institutional, told Bloomberg.

As of December 31, 2021 Coinbase held $566.5 million in crypto, including $183.4 million in Bitcoin, according to the company’s annual report.

GOBankingRates reached out to both Coinbase and Goldman Sachs.

Jae Yang, CEO of Tacen, told GOBankingRates it’s easy to see how such a product offering is taking people by surprise, as just a few years ago, big financial institutions were highly negative of almost all things crypto.

“But that has certainly changed with the flood of institutional money entering the space, and it certainly makes sense that Coinbase is involved,” Yang said. “You could describe Coinbase as the OG of crypto exchanges, and the level of expertise that the company fields is just massive. So it’s no surprise, when you look at this development from such a lens, that Goldman would draw on Coinbase expertise.

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According to Yang, crypto-collateral loans will become a massive industry here soon.

“Already, we are seeing lenders looking to use Bitcoin as collateral for mortgages, and it makes sense because, as many have argued, Bitcoin is both digital gold and pristine digital collateral. Michael Saylor of MicroStrategy has been using Bitcoin in such a way for well over a year now. And many others are following his lead. This will be a huge market for Goldman,” Yang added.

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In a report released May 2, crypto firm Arca said that while the details of the loan are scarce, it demonstrates the willingness of institutions to utilize new tools with old techniques.

“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,” according to the report.

Goldman told Bloomberg that the deal was interesting to the bank because of its structure and 24-hour risk management.

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Garry Krugljakow, founder and CEO of GOGO Protocol, explained to GOBankingRates that the move will trigger a flood of traditional institutions to follow.

“This is also a huge market opportunity for Coinbase to become a top player in this type of product offering. Going forward, given how fast this space is evolving, I think DeFi protocols will play an increasingly prominent role in such collateralized lending,” he said.

Krugljakow added that Bitcoin is the stepping stone — as evidenced by how much MicroStrategy and other companies have bought to shore up their balance sheets — but it will soon become clear to Wall Street that the sheer functionality involved with DeFi will be “too tantalizing to pass up.”

“In DeFi, the collateral can be offered in ways that offer borrow-lend markets various forms of yield. And the fact that you don’t have to sell your coins in all of this is just a huge potential plus. People don’t want to take out second mortgages on their homes — it’s far more useful to use Bitcoin and other crypto assets for this type of utility,” he said.

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In March and also in an industry first, Goldman Sachs announced it had executed the first over the counter (OTC) cryptocurrency transaction with Galaxy Digital, reflecting the bank’s continued expansion of crypto offerings and demonstrating the continued maturation and adoption of digital assets by banking institutions.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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