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Coinbase Backs Bitcoin Loans for Wall Street Bank Goldman


Key Insights:

Coinbase will be working with Goldman Sachs on Bitcoin loans.

Wall Street banks are seeing more demand for crypto facilities and services.

Bitcoin prices have fallen to a 7-week low, and Coinbase stock is up marginally.

Last week, Goldman announced its first-ever Bitcoin (BTC) backed loan in which the king of crypto would be used as collateral to secure a cash loan for the borrower.

It has now been revealed that America’s largest exchange Coinbase will be working with the Wall Street bank on crypto-collateralized loans; however, the terms of the lending facility have not been disclosed.

On May 3, Brett Tejpaul, head of Coinbase Institutional, told Bloomberg:

“Coinbase’s work with Goldman is a first step in the recognition of crypto as collateral which deepens the bridge between the fiat and crypto economies,”

Bridging The Gap

Bitcoin-backed loans are not new to the crypto industry, but they are to Wall Street. The move signals that big banks are finally warming to crypto and broadening their services to incorporate institutional clients with digital asset investments. Earlier this week, JPMorgan CEO Jamie Dimon said that crypto was more efficient than banks for international transfers.

Goldman already has a team focused on crypto and traded its first-ever over-the-counter (OTC) Bitcoin options in March, becoming the first major U.S. bank to do so.

Loans in the crypto sector usually involve borrowers supplying Bitcoin at loan-to-value in the 40% to 60% range. This is according to the managing director of trading and lending at crypto prime brokerage Genesis, Matthew Ballensweig, who added:

“Tenors can vary as well as other prepayment terms, but it’s a simple structure to bring institutional lenders into the market,”

Coinbase (COIN) has already structured similar crypto loans with crypto-friendly banks such as Silvergate Bank and Signature Bank, and similar structures with large investment banks are being developed.

Coinbase held more than $566 million in crypto assets, including more than $183 million worth of Bitcoin at the end of 2021. It also reported cash equivalents in the $7 billion range, making it a prime candidate for providing collateral.

Crypto Mortgage Risks

In a related matter, Weiss Ratings agency has recently issued a warning over using Bitcoin and crypto assets to back loans for real estate. The research firm advised caution with such mortgages, citing declines in stock and crypto markets this year, a U.S. housing bubble, rising interest rates, and the Federal Reserve’s upcoming policy changes.

Bitcoin prices have retreated again today, falling a further 1.3% to dip below $38,000 for the first time since mid-March. Coinbase stock had gained 2.17% to reach $123.5 in after-hours trading.

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