Lending and borrowing have become words associated with bitcoin. This is the same with traditional finance where lending and borrowing remain a large part of the ecosystem. However, there was no intersection between these three. This mostly stems from the mistrust of traditional finance towards bitcoin. The still largely unregulated digital asset did not provide the kind of commercial support needed. This so far.
Bitcoin Backed Loans at Tradfi
Investment bank Goldman Sachs has announce Offering Bitcoin Backed Loans. In what is considered a first for a large US bank, Goldman Sachs has expanded its crypto offerings to include these Bitcoin-backed loans. It is the first secured lending facility of its kind that will lend money against BTC security.
Mostly, banks have moved away from cryptocurrency due to its highly volatile and unregulated nature. However, many institutions have taken on services revolving around cryptocurrencies such as asset and wealth management, trading and investing. All of that is still a far cry from cash loans that use bitcoin as collateral.
Such a move would not only see Wall Street adopt cryptocurrency faster but other factions of traditional finance would begin to move in that direction.
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There is no doubt that Goldman Sachs has evolved its view of Bitcoin over time. Less than two years ago, the bank did not believe that cryptocurrency was an asset class. Since then, it has not only recognized it as an asset class but also offered its clients a way to trade cryptocurrency. It also boasts a cryptocurrency research team that publishes reports on the cryptocurrency market. Over the months, these reports were mostly bullish on digital assets like Bitcoin and Ethereum.
Although this is the first bank to accept bitcoin as collateral for a loan, it is by no means a new concept. The emergence of the decentralized finance (DeFi) space has resulted in users being able to borrow against their crypto holdings for a long time. There are DeFi protocols dedicated to this in space.
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In this regard, traditional finance plays a role in catching up with DeFi which does not require any paperwork for individuals to secure a loan. With a deal like the one offered by Goldman Sachs, it could help bridge the gap between traditional and decentralized finance.
Bitcoin is trading at $38,927 at the time of writing, down 2.64% in the past 24 hours.
Featured image from Bitcoin Lending, chart from TradingView.com