You may have already considered the possibility of creating a product that would allow you to obtain a loan or mortgage, which would accept your cryptocurrencies instead of the classic guarantee in the form of real estate, for example. Or you find yourself in a situation where you desperately needed cash, but you didn’t want to lose any profits from the increase in the value of your cryptocurrencies. Goldman Sachs comes up with a revolutionary product that makes all this possible and combines traditional finance with the world of cryptocurrencies. In addition, this step can have a significant positive effect on the adoption of cryptocurrencies in the world, and we may be missing only one piece of the puzzle.
What does this mean for the world of traditional finance, and how does it work?
Lending has an important place in the traditional finance ecosystem. We can say the same about the crypto world, where lending has become a lucrative source of passive income for many companies and individuals. In addition, we have long seen a massive increase in the adoption of cryptocurrencies, not only by ordinary people but also by large institutional investors. Thus, it was probably only a matter of time before a similar product emerged to meet the growing demand for solutions involving digital assets.
We can say that the big banks were waiting for this step, which stemmed mainly from distrust in cryptocurrencies and bitcoin. Today, however, these institutions are also likely to understand that the potential returns outweigh the risks, primarily involving significant industry volatility and regulations issues. Nevertheless, due to growing demand, they gradually brought products and services directly linked to cryptocurrencies – asset management, trading and investment. Loans that use cryptocurrencies as collateral thus represent another logical step in the development of the provided products.
How does it actually work? The principle is straightforward. In the past, for the crypto, an investor who for some reason needed to turn cryptocurrencies into cash was the only way he sold them. This, of course, deprived him of any gains that could have arisen from the increase in the asset price. Through the new Goldman Sachs product, he can use these cryptocurrencies as loan collateral and continue to benefit from price increases. At the same time, from the point of view of the bank’s risk-type loan, they operate with a so-called 24-hour risk management strategy. In the event of a sharp drop in the cryptocurrency price, the collateral may be liquidated, or the client may be asked to increase the collateral with additional assets.
Maybe we are just a step away from the peak of cryptocurrency adoption
In this respect, traditional finances are essentially catching up with the decentralized finance (DeFi) sector, which allows even the smallest (in terms of capital) users to earn money by lending cryptocurrencies, all without virtually any unnecessary paperwork. Goldman Sachs can thus make a significant contribution to bridging the traditional financial world and decentralized finances.
Equally important is the change in the attitude of this large bank, which only two years ago did not believe that cryptocurrencies were a real asset class. Today, they not only recognize them as an asset class but actively offers their clients a relatively wide range of services and products with a connection to cryptocurrencies. They also boast their own cryptocurrency research team, which regularly publishes (mostly positive) reports on the crypto market. This will undoubtedly affect the rate of cryptocurrency adoption across Wall Street, and other sections of the traditional finance world will likely begin to move in this direction.
However, Goldman Sachs is far from the only swallow that is increasingly interested in the cryptocurrency industry. Microstrategy has only recently taken out a $ 200 million loan from Silvergate and used the money to buy more BTC. This clearly confirms that bitcoin is no longer perceived only as a highly speculative investment. It can be assumed that other larger and smaller players will start to follow the actions of Goldman Sachs.
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The last imaginary piece of the puzzle that would represent a real breakthrough and explicit recognition of cryptocurrencies by traditional finance is the approval of a spot ETF in the USA. The US Fed receives many similar requests from various companies but has so far rejected them all. However, analysts expect that the approval of the first spot ETF may come soon and agree that we may subsequently witness a long-lasting bull run of bitcoin, in which there is practically no limits.