Major banks are exploring synthetic crypto products with bitcoin as collateral for loans.
Major banks such as Goldman Sachs are exploring the use of Bitcoin as collateral loans, as per sources cited in a CoinDesk article.
Banks are wary of cryptocurrency as an asset but are willing to invest in synthetic crypto products such as futures. Even the regulators in the US share the same view. That’s why Bitcoin futures-based Exchange Traded Funds (ETF) get approved rather than the spot market ones.
Banks are trying to recreate the “tri-party repo type arrangements (a way of borrowing funds by selling securities with an agreement to repurchase them, involving a third-party agent).”
In such an arrangement too, they will not be exposed to Bitcoin directly.
“Goldman was working on getting approved for lending against collateral and tri-party repo,” said one source. “And if they had a liquidation agent, then they were just doing secured lending without ever having bitcoin touch their balance sheet.”
Goldman is not the only one trying its hand at crypto. Other Wall Street banks also want to have a share of the pie.
“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.”
But this too needs regulatory clarity. In every case, a specific regulator may or may not approve the proposal depending upon what is proposed.
Adoption of Bitcoin as collateral will provide it legitimacy and establish its reputation as a reliable asset.
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