Risk.net Says Fitch, S&P, Moody’s Ratings on Bitcoin Futures Growth Could Hurt Banks


Bitcoin Futures Could Have a Negative Impact in Bank Ratings

At the end of the last year, the Chicago Board Options Exchange (CBOE), and the Chicago Mercantile Exchange (CME), decided to start offering Bitcoin futures contracts to accredited investors. But according to a financial publication made by Risk.net rating agencies may downgrade banks that clear bitcoin futures if there is an increased volume in the coming months.

Rating Agencies May Downgrade Banks

Important rating agencies, including Standard and Poor’s, Moody’s and Fitch, expressed their concerns about the increased volume in bitcoin futures market in the United States.

Since December, the volume of futures contracts transacted at the CBOE and CME, has been steadily increasing. The increasing volume has helped the asset to gain legitimacy among investors, but the most important rating agencies are worried that the banks could be taking unnecessary credit risk.

Even when the volume is still low to be considered a major concern by these rating agencies, they may downgrade the creditworthiness of banks who are clearing bitcoin futures for their clients.

Nathan Flanders, global head of non-bank financial institutions at Fitch Ratings, commented:

“[The impact on ratings] is something that we think is perhaps not fully appreciated by the market and something that warrants monitoring going forward. If the notional materiality increases, that is going to increase our dialogue with the banks.”

Flanders explains that banks say that they are not directly engaging with cryptocurrencies, but they have some indirect exposure to the market even if they do not want it.

Rating agencies provide letter grades to banks and other enterprises for investors to analyse future investment decisions. Those companies that have downgraded ratings may find it more difficult to obtain funding and require higher requirements, thus reducing the amount of credit for their clients.

And Standard & Poor’s and Moody’s have a similar point of view to this of Fitch. Ana Arsov, manager director at Moody’s, said that bitcoin futures clearing would be considered ‘credit negative’ when analysing a bank.

“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.”

Moreover, Thierry Grunspan, director of global financial institutions ratings at Standard & Poor’s agreed with the comments made by other agencies, but he made it clear that the risk is very low and not imminent.

In the future, if these firms and banks keep engaging with Bitcoin futures contracts, it could be a factor to reduce banking grades.

But this tendency does not seem to be decreasing. Nasdaq is also planning to develop its own bitcoin futures product, and the CME and CBOE are working in other crypto-related products for institutions and their clients.

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