Last week, Goldman announced its first-ever Bitcoin-backed loan (such as buy BTC) where the king of cryptocurrencies would be used as collateral to secure a cash loan for the borrower.
It has now been revealed that the largest US exchange Coinbase will work with the Wall Street bank on crypto-backed loans; however, the terms of the loan facility were not disclosed.
On May 3, Brett Tejpaul, head of Coinbase Institutional, told Bloomberg:
"Coinbase's work with Goldman is a first step in recognizing crypto as a guarantee that deepens the bridge between the fiat and crypto economies".
Fill the gap
Bitcoin-backed loans aren't new to the crypto industry, but they are new to Wall Street. The move signals that big banks are finally warming up to cryptocurrencies and expanding their services to incorporate institutional clients with digital asset investments. Earlier this week, JPMorgan CEO Jamie Dimon said cryptography is more efficient than banks for international transfers.
Goldman already has a crypto-focused team and traded its first over-the-counter (OTC) Bitcoin options in March, becoming the first major US bank to do so.
Loans in the crypto sector usually involve borrowers providing Bitcoin at a loan-to-value in the 40% to 60% range. This according to the chief executive of trading and lending at crypto prime brokerage Genesis, Matthew Ballensweig, who added:
"The tenors may vary as well as other prepayment terms, but it is a simple structure to bring institutional lenders to market."
Coinbase (COIN) has already structured similar crypto loans with crypto-friendly banks such as Silvergate Bank and Signature Bank, and similar structures with large investment banks are under development.
Coinbase held more than $ 566 million in crypto assets, including more than $ 183 million worth of Bitcoin at the end of 2021. It also reported cash equivalents in the $ 7 billion range, making it a prime candidate for provide guarantees.
Mortgage Risks of Cryptocurrencies
In a related issue, Weiss Ratings agency recently issued a warning about using Bitcoin and crypto assets to support real estate loans. The research firm advised caution with such mortgages, citing declines in stock and cryptocurrency markets this year, a housing bubble in the US, rising interest rates, and upcoming Federal Reserve policy changes.
Bitcoin prices retreated again today, dropping a further 1,3% to drop below $ 38.000 for the first time since mid-March. Coinbase shares gained 2,17% to hit $ 123,5 in after-hours trading.