Goldman Sachs, and some of the leading U.S. banks are planning to offer Bitcoin-backed loans.
What happened? Goldman Sachs is among some of the tier-one U.S. banks contemplating ways to offer institutional cash loans with Bitcoin as collateral, CoinDesk reported. The report cited three people familiar with the plans of a handful of leading wall street banks figuring out such service.
However, most banks would not custody “physical” bitcoin to make the loans but instead, resort to synthetic products such as futures.
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The idea is to emulate tri-party repo agreements, the report said. It is a type of repurchase agreement in which a third-party agent facilitates the transaction between buyer and seller by taking custody of the collateral and ensuring proper delivery of cash and the involved assets to each party as per the agreement’s terms.
“Goldman was working on getting approved for lending against collateral and tri-party repo,” one of the people told CoinDesk. “And if they had a liquidation agent, then they were just doing secured lending without ever having bitcoin touch their balance sheet.”
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A second person from a large institutional trading firm shared that while some banks will use a third party to make the loan, others plan to use their own balance sheet.
“We’ve probably spoken to half a dozen big banks about [bitcoin-backed loans],” the second person reportedly said. “Some of them are in the next three to six months category and some are further out. What’s interesting is some of these banks will use their own balance sheet to make the loan. Others will syndicate this out.”
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According to the report, Coinbase and Fidelity Digital Assets were cited as potential custodians the banks were in discussions with.
U.S. banks and savings associations received the green light to custody cryptocurrency for clients last year through a letter published by the Office of the Comptroller of the Currency (OCC). Although questions remained at the time, this year, BNY Mellon and U.S. Bank announced plans for bitcoin custody services.
In October, the Federal Deposit Insurance Corporation (FDIC) chairman said U.S. regulators were exploring ways for traditional banks to hold bitcoin. One month later, the FDIC issued a joint statement with the Federal Reserve and the OCC on the matter, saying the three agencies would provide greater regulatory clarity in 2022 for banking institutions interested in engaging with bitcoin.
Why Does It Matter?
This is definitely a big change in the way banks used to portray Bitcoin and other cryptos initially. Earlier they tried to keep them out of the system by saying that it is used for illicit activities and can threaten the global financial system. So, they were planting doubts and concerns.
Now, the scenario have changed. Big institutions and even some countries have adopted Bitcoin as a tool to prosperity. It is now a legal tender in El Salvador. Moreover, a larger picture is emerging where strong Bitcoin supporters have been able to convey the message that Bitcoin is more dependable than fiat as a currency.
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Added to that if Banks starts adopting Bitcoin or building services around that it will accelerate the Bitcoin adoption, regulation, and not to say its valuation.
Price Action
According to digital asset market database CoinMarketCap, Bitcoin price was down 0.34% in past 24 hours and one Bitcoin was changing hands at $56,624.43 at 9:16 pm (GMT-8).
