Goldman Sachs to Offer Bitcoin-Backed Loans as More Banks Embrace Crypto

Fidelity, US Bank, JPMorgan Also Have Crypto Products in the Works

Yes, Goldman Sachs has accepted bitcoin as collateral for a cash loan it issued to one of its customers, a first for itself or for any major US financial institution.

“We recently extended a secured lending facility where we lent fiat collateralised on BTC; BTC being owned by the borrower,” a spokesperson for the bank said in a statement. “The interesting piece for us was the structure and the 24-7-365 day risk management.”

It’s understood that, as with other major US banks potentially looking into similar credit products, Goldman is using tri-party repo agreements for its bitcoin-backed loans. This means that, rather than taking custody of bitcoin itself, it enters into an agreement whereby the customer effectively sells their bitcoin in order to receive the cash loan, and then settles the debt by buying back the cryptocurrency at a predetermined date.

Either way, the fact that Goldman Sachs and other major banks are moving in this direction is yet another sign that Wall Street and the wider financial sector is increasingly taking bitcoin and cryptocurrency seriously. Indeed, the list of institutions and banks now offering some kind of bitcoin service is growing:

• Fidelity: announced in late April that it’s giving its clients the chance to allocate a percentage of their pension portfolios to bitcoin.

• Bank of New York Mellon: announced in February 2021 that it was launching a bitcoin custody service; reports surfaced a year later that it was building a broader cryptocurrency custody platform, enabling its customers to ethereum as well as bitcoin, and with plans to expand to other coins.

• State Street: announced in March 2022 that it’s launching a digital asset custody platform in partnership with Copper.

• US Bank: announced a bitcoin custody service in October 2021, with support for other cryptocurrencies planned.

• Morgan Stanley: began offering clients the ability to invest in bitcoin funds from March 2021. Launched a cryptocurrency research team in September of that year.

• JPMorgan: began offering clients the ability to invest in a variety of cryptocurrency funds from July 2021; launched its own in-house bitcoin fund in August of that year.

• Wells Fargo: introduced cryptocurrency funds for clients from May 2021.

• Bank of America: began offering bitcoin futures trading for wealthier clients in July 2021.

This is only a limited selection of examples of major institutions becoming increasingly involved in cryptocurrency, with non-US banks Deutsche and BBVA Switzerland also dipping their toes in the sector.

What this increasing wave of involvement and usage indicates is that bitcoin and cryptocurrency are now viewed as legitimate vehicles by the financial sector, even if crypto continues to receive more than its fair share of criticism in some quarters.

By extension, what it also indicates is that, as the economic environment improves later in the year, the cryptocurrency market may see increased investment. This is suggested by Goldman’s latest foray into the sector, something which could be repeated by other big institutions. Such repetitions all help to reframe the narrative surrounding bitcoin and crypto, recasting them as legitimate investments and also opening up access for ‘lay’ investors, and in the process causing price rises.

Crypto Adoption Keeps Rising Despite Market Volatility

And while scans through recent world news may leave many thinking there’s not much to be wildly optimistic about right now, plenty of crypto-related adoption news keeps on trickling through. Again, this reinforces the perception that the cryptocurrency market is being opened to more activity and investment once the macroeconomic situation improves.

For one, the Central African Republic became the second country in the world to make bitcoin legal tender at the end of April, following in the footsteps of El Salvador, which made BTC legal tender in September 2021. While it can be argued that having another less-than democratic nation adopt BTC isn’t the best advert, the CAR’s move highlights bitcoin’s rising status as an alternative currency.

This status was also highlighted in the growing use of BTC as a result of the Ukraine-Russia war, with individuals turning to the cryptocurrency as local currency use was either restricted or made less appealing as a result of inflation.

Looking to commercial adoption, we also see plenty of examples of businesses embracing cryptocurrency in recent weeks, and again strengthening the notion that the scene is being set for a big rally once the current situation improves. Here’s a small selection:

• (April) German retailer MediaMarkt installs Bitcoin ATMs at 12 of its branches in Austria, after pilots found that the ATMs help attract new customers.

• (April 28) Swiss fashion designer Philipp Plein launched a concept store in London that accepts cryptocurrency as payment, and that also offers customers the chance to receive NFTs of the physical items they purchase.

• (April) Colombian online food delivery service Rappi begins accepting cryptocurrency payments in Mexico.

• (April 12) Strike announces integration with Shopify, enabling the latter’s merchants to accept Lightning-based bitcoin payments.

This is only a small handful of the announcements made in a single month. Despite being small, it provides strong evidence that interest in and adoption of cryptocurrencies is gradually increasing. And with this interest growing to a new critical mass, it suggests that it’s only a matter of time until crypto experiences another big bull market.