First Microstrategy, and now Coinbase takes a BTC-backed loan. The exchange turned to Goldman Sachs to get the loan and is the first major crypto exchange to do so. Goldman Sachs offering the same also shows how deep they are going into the crypto industry. This will pave the way for other companies to borrow money with their BTC as collateral. At the same time, more firms could also start offering the same option.
Coinbase takes a BTC-backed loan
Coinbase has collateralized 4,487 Bitcoins which are roughly worth $170 million for the loan. The loan will be managed 24-hours for risk, and the exchange might need to top up its collateral if the price of BTC falls too low. However, the exact liquidation level wasn’t disclosed yet. Coinbase’s BTC-backed loan asserts the fact that Bitcoin is an asset and can be used as collateral. It is their way to deepen the ties between the fiat and the crypto world.
Goldman Sachs might be testing the idea of offering a Bitcoin-backed loan with Coinbase as it could be seeing more demand, reported Arca, an asset management firm. If that’s the case, it shows that sooner or later, the lines between traditional finance and cryptocurrencies will start to blur. The same has already begun.
What makes a Bitcoin loan so attractive?
The general idea in the crypto community is to keep holding your coins forever. If you ask the reason, it’s probably the monumental gains that investors witness every 4 years when the halving happens. Therefore, a Bitcoin-backed loan gives investors a way to spend their money while holding their coins. They can still enjoy the gains while the price of BTC rises and pay back within their tenure. The interest rates of these loans aren’t very high as well, which makes them even more attractive.
There are some risks involved though, one of which is the liquidation if the prices drop too low. However, that’s something the borrower needs to be prepared in advance for and top up their collateral if needed.
If you were holding Bitcoin and needed a loan, would you consider using your coins as collateral? And what are your thoughts as Coinbase takes one? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.
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