Crypto Gains Regulatory Attention
The US Federal Reserve has proposed a new framework for margin requirements on crypto derivatives, aiming to address the unique volatility of digital assets in over-the-counter and non-cleared transactions.
Differentiating Floating and Pegged Assets
The report highlights that floating crypto assets like Bitcoin and Ethereum, as well as pegged digital currencies such as stablecoins, exhibit volatility patterns distinct from traditional asset classes like equities, commodities, or forex.
- Bitcoin and Ethereum show extreme price swings
- Stablecoins carry hidden risks despite fiat pegs
- Conventional risk models fail to capture crypto volatility
Regulators should therefore adopt tailored risk weightings for each crypto category.
Benchmark Index for Risk Calibration
To better simulate crypto market behavior, the paper suggests constructing a benchmark index comprising 50% floating and 50% pegged digital assets, serving as a proxy for calibrating more accurate risk parameters.
Margin Mechanism as Risk Control
Initial margin plays a critical role in derivatives risk management, requiring traders to post collateral against counterparty default risks. Due to crypto's high volatility, higher collateral buffers are necessary.
This proposal reflects ongoing technical preparations by US regulators to integrate digital assets into the existing financial oversight structure.