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Goldman Sachs Launches the First Bitcoin Backed Loan .

One of the biggest financial organisations on Wall Street; Goldman Sachs recently announced the introduction of a Bitcoin-backed lending product. With this development, Bitcoin can be used as collateral at the Wall Street institution to secure loans.

A spokeswoman from Goldman Sachs revealed during an interview with Bloomberg, that the Wall Street biggest financial organisation has provided a loan that has Bitcoin backing as a form of collateral making it the first of its kind in the history of banking.

This is not the first time Goldman Sachs will be engaging with cryptocurrencies. However, what makes this loan an interesting development is the consideration of Bitcoin as a financial asset with its high volatility rate that demands a 24-hour risk management framework.

One of the risks associated with using Bitcoin as collateral for borrowing fiat money is the volatility attached to it. The value of Bitcoin tends to change constantly and as a result, using Bitcoin as collateral in banks is rather risky and can be dangerous for financial organisations. To handle these risks, if the price of Bitcoin declined by a substantial margin, the borrower could be compelled to raise the collateral presented to the bank.

Crypto loans are already prevalent in the decentralised finance (DeFi) industry. But, they have not been implemented in the conventional financial industry on this large scale. The latest action by Goldman Sachs might uncover utility for cryptocurrencies.

Goldman Sachs worked with Galaxy Digital, founded by Michael Novogratz, to make its first over-the-counter bitcoin transaction in March. Other Wall Street organisations are also jumping into the bitcoin market.

BlackRock, a renowned asset management business, recently announced it will establish an exchange-traded fund (ETF) centred on the blockchain. The business has also disclosed that it engaged in a $400M fundraising round for Circle, the issuer of the USDC stablecoin.

JPMorgan is likewise boosting its participation in the bitcoin market. JPMorgan has a crypto and blockchain division. It just announced the debut of the Onyx Lounge on the Decentraland metaverse for this division. Propy, a blockchain real estate business, announced its cooperation with Abra to allow its clients access to house loans while utilising digital assets as collateral.