US Rating Agencies Assessing Impact of Bitcoin Futures
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US Rating Agencies Assessing Impact of Bitcoin Futures

In order to control the growth of Bitcoin futures, credit agencies in the U.S. may downgrade banks that clear the Bitcoin futures.

This is done to ensure that the volume of trade in Bitcoin futures is reduced in the coming months. The three large credit rating agencies in the U.S. – Fitch, Standard and Poor’s and Moody’s, were concerned about the increased volume of trade in Bitcoin futures market which are also traded on and available on the regulated US Exchanges including CBOE and CME.

The volume of Combined Bitcoin futures trading has surpassed $670 million during a single day trading session and has been growing steadily since their launch in December. Credit rating agencies are worried that Banks are taking unnecessary credit risk by engaging in an increased volume of Bitcoin futures which is also helping them lend legitimacy.

According to Rating agencies, due to an extreme volatility of Bitcoin price and fearing credit capacity, they may consider downgrading the creditworthiness of any such banks who clear bitcoin futures for the benefit of their clients.

Rating agencies assign credit ratings mostly in the form of letter grades. They assign it to banks to estimate the risk of default on their debts. Banks whose ratings are downgraded have a more difficult time obtaining access to funding and possibly face higher collateral requirements, limiting the amount of credit they can extend to their clients.

Nathan Flanders, Global Head of non-bank financial institutions at Fitch Ratings, said “The impact on ratings is perhaps not fully appreciated by the market and warrants monitoring going forward. If the notional materiality increases, that is going to increase our dialogue with the banks. For banks, even though they are saying they are not directly engaging in the trading of cryptocurrencies as clearing members, they have some indirect exposure to it, whether they like it or not.”

Bitcoin Futures are traded on exchanges very frequently and are regulated by the US Government. Even after such scrutiny, Rating agencies are alarmed because of the increased volume of such trades. They are also concerned because of the possible risks involved in such trade considering the volatile prices of Bitcoin.

Not to forget that after the famous 2008 financial crisis, credit rating agencies have taken all possible steps to ensure that they don’t have to face another backlash and that everything happens in a regulated and controlled financial environment.

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Aayushi Dhawan
Aayushi Dhawan is an avid reader, researcher, crypto writer and a passionate student. While pursuing her graduation in commerce at SRCC, she realized that writing and Finance give her immense pleasure. She is currently pursuing her post graduation in Commerce (Finance) from Department of Commerce, Delhi School of Economics and keeps on exploring the intricacies of research, her biggest strength.