How Do Bitcoin-Backed Loans Help Coinbase?
Loans backed by Bitcoin are still appealing in comparison to more traditional banks such as Goldman Sachs. But, according to Matthew Ballensweig, managing director of Genesis, the standard terms for these loans require the borrower to put up Bitcoin worth 40 percent to 60 percent of the collateral's value.
Although Goldman is new to using Bitcoin as collateral for loans, the bank did take a small step into the Bitcoin pool in March. At that time, the bank started a non-deliverable Bitcoin option, a Bitcoin derivative that pays the borrower. Galaxy Digital Holdings, a financial services company, founded by a former Goldman Sachs partner, served as the intermediary for this cryptocurrency transfer.
"These kinds of bilateral agreements are rarely made in a vacuum," according to an Arca report on institutional financial services firms that focuses on cryptocurrencies. However, because this type of transaction is not popular, Goldman is probably just testing the waters before making a larger splash.
How is Coinbase Benefiting from this?
Coinbase currently holds Goldman Sachs' first Bitcoin-backed loan. In addition, different reports on the internet have claimed that Goldman Sachs' Bitcoin-backed loan will build a stronger bond between the crypto and trading worlds.
This particular step that has been taken is a big one toward the recognition of crypto as collateral. This has also helped to build a strong relationship between the fiat and crypto economies taken by Goldman and Coinbase.
A portion of Coinbase's Bitcoin holdings served as security for the loan, with an undisclosed value. Coinbase has over 4,487 Bitcoin in today's pricing, worth over 170 million dollars. Traditional banking institutions continue to view crypto-backed loans as a way to acquire access to more money, despite their utilization in the DeFi sector.
Do Coinbase Offer Loan Services?
Coinbase also offers loan services. These loans are not the same as those available at a traditional bank branch. They only have interest in your KYC (Know Your Customer) information. In addition, there is no interest rate discrimination here; all eligible residents are welcome.
Coinbase loans are secured loans that require the borrower to put up cryptocurrency as collateral. Because the lender does not have to take any risk, they are less expensive than unsecured loans.
Their fee structure is easy to understand. Currently, the nominal interest rate is 8%, and the APR (Annual Percentage Rate) is calculated by multiplying the Overnight FED Rate by a "small" margin. In comparison to bank loan rates for people with a low FISASCORE, it is a very inexpensive way to borrow money because there are no late fees for obtaining or repaying the loan.
Coinbase only charges interest on their loans, and there are no late fees. They also have the option of setting a maximum term of two years. Hopefully, this is only for delinquent accounts; otherwise, this may not be a long-term solution for your borrowing needs.
How to Borrow Bitcoin from Coinbase
1. Check Offer Availability
First, check Coinbase to see if this new feature is available in your state. Coinbase Borrow is currently available to residents of Arkansas, Arizona, California, Alaska, Idaho, Florida, North Carolina, Illinois, New Jersey, New Hampshire, Oregon, Ohio, Nebraska, Texas, Utah, Tennessee, Washington State, Virginia, and Wyoming. However, they intend to expand this offer to more states and territories in the future.
2. Open a Coinbase account.
If you already have an account, you can skip this step. However, if you haven't already, it will relieve you to know that Coinbase has made it easy for anyone to sign up and start buying and selling on the platform. To sign up, go to their website and click "create your account." Then, provide the requested information, select a payment method, and confirm your account using the email address provided.
3. Purchase Bitcoin and add it to your portfolio.
After creating an account, launch the app, select "Buy," and then choose Bitcoin from the list of assets (BTC). You should be able to see how much Bitcoin is currently worth there. Next, choose the number of Bitcoin shares you want to purchase. So, the more coins you buy, the more likely Coinbase Borrow will work for you.
4. Preview Coin Purchase
When you've determined how much you want to spend, click "Preview" to see how much it will cost. This will display how much BTC you wish to purchase. This will also determine how much Coinbase will charge you and how much you will pay. Coinbase deducts its fees from the amount purchased. For instance, if you spend $50, you'll pay $1.99 in fees. Finally, use a credit card or a bank account to complete the transaction.
5. Determine your eligibility
Check to see if the new feature is available to you. You can do this by visiting coinbase.com/borrow or by responding to an email invitation from Coinbase.
6. Borrow money and repay it
If you are eligible and the offer is still open, you can borrow 30% of the value of Bitcoin in your account if the offer is still open. There will be no fees, credit checks, or upfront payments. The only difference is that the APR will be 8%. The money you borrow can be transferred immediately to your PayPal account or any bank account in the United States.
7. Make monthly payments
After borrowing money, you can begin repaying the interest with a monthly minimum payment of $10. There are no late fees, which is great news. You will receive a portion of the Bitcoin that was put up as collateral with each payment.