Goldman Sachs is working towards building what can safely be assumed as the future of the loan market. The traditional method of securing collateral to offer a loan could soon become outdated if the system falls in place after all the necessary approvals are in order.
The function is being designed around the tri-party repo arrangement. This is a model where funds are borrowed only to be repurchased through a third-party agent. The sale of securities to borrow funds is a mandatory occurrence in the model.
Understanding The Announcement
According to the sources, Goldman Sachs is investigating the applications of Bitcoin in the loan market. The traditional way of securing funds by handing over collateral could be replaced with Bitcoin coming into the picture.
Goldman Sachs is not alone in the process. Other banks are also figuring out how to design a similar system.
Once designed and implemented, Bitcoin will be eligible to be placed as collateral to secure the funds as cash loans.
This follows an earlier report that highlighted the $1 billion deal by El Salvador. The deal was reportedly backed with Bitcoin worth $500 million as collateral. The fund was secured to construct the Bitcoin City.
Following this deal, Silvergate and Signature announced the bitcoin-backed cash loans.
Both the US-based banks have been observed deeply by other players in the market. The announcement was made during the early days of 2021.
In the United States of America (USA), there is scope for regulation to emerge from a combination of the OCC, the SEC, and the CFTC. During the previous administration, the prospect of banks taking bitcoin as collateral was granted partial approval when Office of the Comptroller of the Currency (OCC) head Brian Brooks stated that bitcoin was the equivalent of cash and that banks could be the safe keepers of it. Along with the major banks, a slew of smaller institutions is thought to be looking at methods to accept cryptocurrency as collateral. Some of the larger banks will make crypto-backed loans using their own balance sheets.