Bitcoin Futures Could Spur Bank Ratings Downgrades

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Bitcoin Futures Could Spur Bank Ratings Downgrades

Bitcoin Futures Could Spur Bank Ratings Downgrades

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Rating businesses might downgrade banks that clear bitcoin futures if these monetary merchandise proceed to see growing volumes over the approaching months.

Financial publication Risk.web stories that every of the three massive ranking businesses — Standard and Poor’s, Moody’s, and Fitch — have expressed concern over growing quantity in bitcoin futures markets, that are at the moment accessible on regulated US exchanges CME and CBOE.

As CLC reported, quantity in these markets has grown steadily since their December launch, and mixed bitcoin futures buying and selling quantity has exceeded $670 million throughout a single buying and selling session. This growing quantity has helped lend legitimacy to this nascent asset class, but it surely has ranking businesses nervous that banks are taking over pointless credit score threat.

While nonetheless too low to be a significant concern, ranking businesses mentioned that, as a result of volatility of the bitcoin value, they could downgrade the creditworthiness of banks who clear bitcoin futures for his or her purchasers.

“[The impact on ratings] is something that we think is perhaps not fully appreciated by the market and something that warrants monitoring going forward,” mentioned. Nathan Flanders, international head of non-bank monetary establishments at Fitch Ratings. “If the notional materiality increases, that is going to increase our dialogue with the banks.”

He added:

“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.”

Rating businesses assign credit score scores — typically letter grades — to banks to gauge the danger that they’ll default on their money owed. Banks whose scores are downgraded might have a harder time acquiring entry to funding and might also face greater collateral necessities, limiting the quantity of credit score they’ll prolong to their purchasers.

ethereum futures
CME Group operates the biggest regulated bitcoin futures market within the US. Many imagine it’ll finally launch an ethereum futures product.

This hostile view towards bitcoin futures will not be remoted to Fitch. Ana Arsov, managing director at Moody’s, mentioned that it’s going to contemplate a bitcoin futures clearing operation a “credit negative” when deciding on a financial institution’s ranking, although this threat will not be at the moment massive sufficient to have a fabric influence.

“If a bank were to establish a very large business clearing cryptocurrencies, that would be credit negative. As with any asset class, if there is a new concentration of risk that we think is inappropriate, that can create downward ratings pressure. However, we don’t see that risk as imminent.”

Thierry Grunspan, director of worldwide monetary establishments scores at Standard & Poor’s, concurred with these assessments, although he burdened that the danger was “very remote for now.”

“For the clearing members that do trade cryptocurrencies, there is clearly a direct effect,” he mentioned. “If volumes explode, it means some of their hedge fund clients are trading heavily, so it is putting some extra risk on their shoulders. The link is direct.”

But although distant for now, these dangers may turn out to be extra pertinent as extra corporations launch cryptocurrency derivatives merchandise.

CBOE has not been shy about its need to create extra cryptocurrency merchandise, and CME has taken what many imagine are the primary steps towards launching an ethereum futures market. The Nasdaq, in the meantime, is reportedly growing its personal bitcoin futures product and has expressed openness to launching a cryptocurrency alternate.

Moreover, quite a few fund suppliers hope to quickly have the ability to listing the primary bitcoin ETF, a growth that would offer a better variety of retail patrons with publicity to bitcoin futures.

Images from Shutterstock

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