Goldman Sachs Group Inc (NYSE: GS) and other leading banks in the U.S might use Bitcoin as collateral when giving institutions loans. These banks would not involve themselves in cryptocurrency spot markets but instead focus on futures among other synthetic cryptocurrency offerings.
Sources say six other banks may issue Bitcoin-backed loans
This move offers banks a way to capitalize on the rising crypto markets without joining them.
Sources who have discussed bitcoin-backed loans with about 6 banks state that others would have implemented the new change in 3-6 months. However, others still have a long way to go before making a move. Some banks will use their balance sheet for their loan, while others plan to syndicate it.
These banks appear to be modeling their strategy after tri-party repo arrangements, which borrows capital by selling securities and repurchasing them in the future through a third-party agent.
Signature and Silvergate have announced their intention to give such loans. Goldman Sachs might soon be joining them. Fidelity Digital Assets and Coinbase, a cryptocurrency exchange, could be offering custody services. Neither has responded to the request for comment.
Using Bitcoin as collateral will allow more integration with digital asset prime brokerage devices. Smaller banks are also considering making a move. It also shows Wall Street’s sudden acceptance of a $2.7 trillion asset class.
Brian Brooks, the chief of the Office of the Comptroller of the Currency (OCC) under the Trump administration, once pointed out the benefits of using Bitcoin. Brooks stated that Bitcoin was similar to cash and that banks could guard it the same way.
Regulations could make it hard for banks to implement bitcoin-backed loans
Despite banks being willing to use Bitcoin-backed loans, new crypto regulations in the U.S could make this harder to implement. The country’s stance on Bitcoin is still shaky. Regulations could depend on the bank and what it proposes. These regulations could come from the Securities and Exchange Commission (SEC), OCC, or the Commodity Futures Training Commission (CFTC). The banks are likely to face competition from crypto banks that offer the same service. BlockFi, Crypto.com, and Vauld give loans against cryptocurrencies such as tether, bitcoin, etc. However, experts argue that it was inevitable that traditional institutions would want to join the crypto market.
