- Coinbase is the first corporate to actually use Bitcoin on its books to borrow money.
- While Bitcoin-backed loans are not new for DeFi, they could revolutionize traditional finance if they gain enough traction on Wall Street.
“If you told me you own all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it because what would I do with it? I’d have to sell it back to you one way or another. It isn’t going to do anything.”
– Warren Buffett, Berkshire Hathaway
While Buffett suggests that Bitcoin doesn’t “do anything,” the experience of Coinbase Global (+1.83%) has proved that it can be used to “do something” and that something is borrow money.
Although decentralized finance or DeFi practitioners have long used their stacks of Bitcoin do “do something,” from borrowing to contributing to liquidity pools to generate yields, Coinbase is the first corporate to actually use Bitcoin on its books to borrow money.
Last month, Goldman Sachs (+1.37%) unveiled its first ever lending facility backed by Bitcoin and that could potentially entice other companies to load the cryptocurrency onto their balance sheet.
While Bitcoin-backed loans are not new for DeFi, they could revolutionize traditional finance if they gain enough traction on Wall Street.
Silvergate Bank and Signature Bank (+1.80%), both of which are crypto-friendly, have been known to have already structured similar Bitcoin-backed loans, but a marquee name like Goldman Sachs has proved elusive until now.
Because of Bitcoin’s volatility, such loans typically only provide a loan-to-value of as low as just 40%, to as high as 60%.
Bitcoin has been trading within a relatively tight channel of late, given the uncertainty surrounding the macro environment and the prospect of policy tightening, which is alleged to be the main driver behind demand for the cryptocurrency.
Some observers suggest that Goldman Sachs move to provide a Bitcoin-backed facility is not likely a one-off transaction and is in response to heightened demand for this type of transaction.
If so, companies that already have Bitcoin on their balance sheets like Block (-3.33%) (formerly known as Square) and MicroStrategy (-6.15%), could utilize these assets to take on more borrowings and other companies that don’t yet have the cryptocurrency on their books, may be inclined to put it on.
Either way, that Bitcoin holders could monetize their Bitcoin without selling it, is a significant qualitative shift on the use case for the cryptocurrency.
