Cryptocurrency: Goldman Sachs Affirms Fiat Inferior by Offering Crypto Backed Loans

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Goldman Sachs Offers Its First Bitcoin-Backed Loan

https://bitcoinmagazine.com/business/goldman-sachs-offers-its-first-bitcoin-backed-loan-report

Goldman has reportedly offered its first ever lending facility backed
by BTC as the Wall Street giant deepens its Bitcoin offerings.

Goldman Sachs has offered its first bitcoin-backed loan.

The arrangement, made popular over the past few years in the Bitcoin
industry by newer companies, enables a bitcoin holder to obtain fiat
money like U.S. dollars by putting up their BTC as collateral to the
bank. If the price of bitcoin drops, the user may be required to
increase their collateral, risking getting liquidated in case they
fail to do so.

The Wall Street giant lent cash collateralized by bitcoin owned by the
borrower for the first time, a spokeswoman for the bank told
Bloomberg. The deal was interesting to Goldman because of its
structure and 24-hour risk management, she told the publication in an
email.

Bitcoin investors have commonly leveraged the setup to increase their
holdings when the price of the digital currency dips. Based on the
assumption that Bitcoin’s decade-long history of price appreciation
will continue in the future, the user chooses to acquire more bitcoin
with credit, without having to pay with their own cash.

The loan type is also popular in another use case: making purchases.
With a bitcoin-backed loan, a bitcoin holder can pay for goods or
services with cash – for example, to buy a house or pay medical bills
– without needing to sell their bitcoin. Not only does the user keep
their bitcoin stash (provided they pay out the loan when it matures)
but they also don’t have to worry about tax implications from a BTC
sale.

Bitcoin-backed loans have also become popular among bitcoin mining
companies, which earn revenue in BTC but need to pay for their
operating costs in U.S. dollars or other currencies. Historically,
miners would sell part of their produced bitcoin to cover expenses,
but over the past couple of years big players in the industry have
grown fond of taking out cash loans with their bitcoin holdings.

Goldman’s entrance into the bitcoin-backed loan business represents a
watershed moment for the industry in terms of liquidity, legitimacy
and optionality available for consumers. Bloomberg did not report the
details of the loan.