According to three people familiar with the plans, Goldman Sachs is one of a few tier-one U.S. banks figuring out how to use bitcoin as collateral for cash loans to institutions.
Banks such as Goldman Sachs will avoid cryptocurrency spot markets in favor of synthetic crypto products such as futures. Banks are exploring ways to follow the same path of not touching bitcoin, as other synthetic products, by 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).
According to the sources, it’s an opportunity that will pave the way for more integrated crypto prime brokerage services in the future. It’s also a continuation of Wall Street’s surprising embrace of a $2.7 trillion asset class – albeit with somewhat niche products.
One of the people said, “Goldman was working on getting approved for lending against collateral and tri-party repo.” “And if they had a liquidation agent, they were just doing secured lending with no bitcoin on their balance sheet.”
Goldman is not alone; a number of large banks are following in the footsteps of crypto-friendly banks Silvergate and Signature, which both announced bitcoin-backed cash loans earlier this year.
“We’ve probably talked to a half-dozen big banks about [bitcoin-backed loans],” a second person from a large institutional trading firm said. “Some of them are within the next three to six months, while others are further out.” What’s interesting is that some of these banks will make the loan using their own balance sheet. “This will be syndicated by others.”
During the previous administration, the idea of banks accepting bitcoin as collateral was given a partial green light when Office of the Comptroller of the Currency (OCC) chief Brian Brooks stated that bitcoin was the equivalent of cash and that banks could be the safekeepers of it.
However, the regulatory environment in the United States remains complicated. Depending on the bank and the proposal, regulation could come from a combination of the OCC, the Securities and Exchange Commission (SEC), or the Commodity Futures Trading Commission (CFTC) (CFTC).
Crypto providers have joined the party.
Coinbase and Fidelity Digital Assets were mentioned as potential custodians with whom the banks were in talks. (Coinbase already provides some institutional financing solutions through its Prime product, but this would be an added feature.)
Coinbase refused to comment. Requests for comment were not returned by Fidelity Digital Assets.
Along with the big banks, a slew of smaller lenders are said to be looking into ways to accept cryptocurrency as collateral.
“Non-bulge-bracket banks are also expanding in this tri-party lending space,” a third source said.