Goldman Sachs, Other Wall Street Banks Exploring Bitcoin-Backed Loans: Sources

U.S. banks want to use bitcoin as loan collateral without touching the bitcoin.

AccessTimeIconDec 2, 2021 at 7:07 p.m. UTC
Updated Dec 2, 2021 at 8:04 p.m. UTC

Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.

Goldman Sachs is among a handful of tier-one U.S. banks figuring out how to use bitcoin as collateral for cash loans to institutions, according to three people familiar with the plans.

Banks such as Goldman will not touch cryptocurrency spot markets but lean towards synthetic crypto products such as futures. Emulating tri-party repo type arrangements (a way of borrowing funds by selling securities with an agreement to repurchase them, involving a third-party agent), banks are exploring ways to follow the same path of not touching bitcoin, like other synthetic products.

It’s an opportunity that lays the groundwork for more integrated crypto prime brokerage services in the future, according to the sources CoinDesk spoke with. It’s also a continuation of Wall Street’s relatively sudden embrace of a $2.7 trillion asset class – albeit with somewhat niche products.

“Goldman was working on getting approved for lending against collateral and tri-party repo,” said one of the people. “And if they had a liquidation agent, then they were just doing secured lending without ever having bitcoin touch their balance sheet.”

Goldman Sachs declined to comment.

Banking bitcoin

Goldman is not alone; a handful of big banks are following the trail blazed by crypto-friendly banks Silvergate and Signature, both of which announced bitcoin-backed cash loans earlier this year.

“We’ve probably spoken to half a dozen big banks about [bitcoin-backed loans],” said a second person from a large institutional trading firm. “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.”

The idea of banks accepting bitcoin as collateral was given a partial green light during the previous U.S. administration, when Office of the Comptroller of the Currency (OCC) chief Brian Brooks said bitcoin was the equivalent of cash and banks could be the safekeepers of it.

However, the U.S. regulatory stance on activity like this remains complicated. Depending on the bank and what exactly is being proposed, regulation could come from a mix of the OCC, the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).

Crypto providers join the party

Coinbase and Fidelity Digital Assets were cited as potential custodians the banks were in discussions with. (Coinbase already offers some institutional financing solutions within its Prime product, but this would be an additional feature.)

Coinbase declined to comment. Fidelity Digital Assets did not respond to requests for comment.

As well as the big banks, a rash of smaller lenders are also said to be considering ways to accept crypto as collateral.

“Non-bulge-bracket banks are also building in this tri-party lending area,” a third person said.

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Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.

CoinDesk - Unknown

Ian Allison is an award-winning senior reporter at CoinDesk. He holds ETH.