Complete Guide to Fitch Ratings Flags Bitcoin-backed Securities For ‘high Market...
Fitch said sharp Bitcoin price swings could quickly erode collateral backing these securities, increasing the risk of losses for lenders and investors.
Credit rating company Fitch Ratings has flagged a high degree of risk associated with Bitcoin-backed securities, a warning that could complicate the expansion of crypto-linked credit products among institutional investors.
In a Monday assessment, Fitch said Bitcoin-backed securities, financial instruments typically structured by pooling Bitcoin (BTC) or Bitcoin-linked assets and issuing debt against that collateral, carry “heightened risks” that “are consistent with speculative-grade credit profiles.”
The agency said such characteristics could place the products in speculative-grade territory, a designation associated with weaker credit quality and a higher likelihood of losses.
As one of the three major US credit rating companies, Fitch’s evaluations play an influential role in how banks, asset managers and other institutions assess emerging financial instruments, particularly those tied to volatile asset classes.
Fitch pointed to the “inherent” price volatility of Bitcoin as well as counterparty risks embedded in these structures.
The agency also referenced the wave of crypto lender failures during the 2022–2023 downturn, likely a reference to BlockFi and Celsius, as cautionary examples of how quickly collateral-backed models can unravel during periods of market stress.
“Bitcoin’s price volatility is a main risk consideration,” Fitch said, warning that breaches of coverage levels could rapidly erode collateral value and crystallize losses.
Coverage levels refer to the ratio of Bitcoin collateral to the amount of debt issued against it. Sharp price declines can cause that ratio to fall below required thresholds, triggering margin calls and forced liquidations.
The latest assessment follows an earlier warning from Fitch last month, when the agency cautioned US banks about elevated risks tied to significant digital asset exposure. At the time, Fitch cited potential reputational, liquidity and compliance risks for banks that are actively engaged in crypto-related activities.
Source: CoinTelegraph
