Fidelity Digital Assets is set to allow its institutional customers to use Bitcoin as collateral against cash loans.
This new service is for those BTC investors who want to turn their holdings into cash but don’t want to sell their crypto assets either, said Tom Jessop, president of Fidelity Digital Assets, in a statement this week.
With this service, Fidelity is targeting hedge funds, miners, and over-the-counter (OTC) trading desks.
Fidelity Investment’s subsidiary will hold the crypto and won’t make the loans itself. For this, it has partnered with crypto lender BlockFi, which will help manage the risk by providing cash for 60% of the loan backed by the trillion-dollar asset. This means, to avail of this service, Fidelity customers have to have an account with BlockFi as well.
“As the markets grow, we’d expect that this becomes a fairly important part of the ecosystem.”
Fidelity is one of the largest asset managers in the US, with over $4 trillion in assets under management (AUM). This week, it launched a Bitcoin spot ETF in Canada.
Exploring Bitcoin-Backed Loans
Besides Fidelity, banks in the US, including Goldman Sachs, are also exploring using BTC as collateral for cash loans to institutions, reported Coindesk citing people familiar with the plans.
Earlier this year, Goldman Sachs re-established its crypto trading desk amid increased interest from its clients, including endowments, hedge funds, and other institutional money managers. The trading desk provides principal liquidity for CME Group’s crypto-related futures and OTC equivalents.
The process allows Goldman Sachs to execute trades with larger notional values. “We’re active in providing liquidity and taking risk on behalf of our clients and in the market,” said Andrei Kazantsev, Goldman’s global head of crypto trading, in an interview.
The Herd is Coming
While these banks won’t get involved in the spot crypto market, they will offer this service through futures products.
“Goldman was working on getting approved for lending against collateral and tri-party repo,” one of the people was quoted as saying. “And if they had a liquidation agent, then they were just doing secured lending without ever having bitcoin touch their balance sheet.”
Already, crypto-friendly banks like Silvergate and Signature have been offering Bitcoin-backed cash loans since earlier this year; late last year, the then-acting OCC Chief Brian Brooks gave banks the green light to accept Bitcoin as collateral.
Out of the half a dozen big banks, some are ready to offer this service in the “next three to six months,” while some “further out.”
“What’s interesting is some of these banks will use their own balance sheet to make the loan. Others will syndicate this out,” another individual from a large institutional trading firm was quoted as saying.
Fidelity Digital Assets and Coinbase are cited as potential custodians among these banks. But not just are big banks interested in offering this service but also smaller lenders are considering ways to accept crypto as collateral.