The multinational investment bank and financial services company Goldman Sachs has announced its first bitcoin-backed loan.
Bitcoin holders are allowed to use their bitcoin as collateral to obtain fiat money such as US dollars from the bank. However, if the bitcoin price drops, users would have to supply additional collateral or may be at risk of liquidation.
Newer companies such as Unchained Capital have offered loans with bitcoin as collateral but Goldman Sachs is the first of the older wall street giants to do so. The structure of the deal and the 24-hour risk management are said to have been seen as attractive to Goldman.
Leveraged trades are very popular among Bitcoin investors. The trade is made on the basis that bitcoin’s value will continue to appreciate over time so investors can acquire bitcoin with credit and don’t have to risk any additional cash. However, given Bitcoin’s volatility, a leveraged trade runs the risk of being liquidated if the bitcoin price falls.
The bitcoin loan can allow users to make purchases using their bitcoin without having to sell it and pay any tax. Since the asset has not been disposed of, as it would be if it was sold into fiat currency, the user has not made a gain so does not incur any tax liability.
The movement of such a pillar of the establishment into crypto-based loans is a sign of a major shift in the world order and bright days to come for cryptocurrency.
