The Fed proposed a new margin mechanism that would classify crypto assets into independent asset classes to manage high price volatility and Derivative market risks.
The US Federal Reserve ( Fed ) believes that current systems do not fully reflect the unique risks of crypto assets, and that new rules could help establish a safer and more stable trading environment.
The proposal stems from a working paper published on Wednesday by researchers Anna Amirdjanova, David Lynch, and Anni Zheng, focusing on uncleared Derivative markets – decentralized, off-exchange transactions that do not go through a centralized clearing institution, and therefore carry higher risks.
The authors warn that crypto assets need to be classified separately when calculating initial margin requirements – the amount of money or assets a trader must deposit before engaging in Derivative trading to protect both parties in case one party fails to fulfill its obligations.
Currently, margin requirements are typically determined by the Standardized Initial Margin Model, grouping assets into segments such as interest rates, stocks, foreign exchange, and commodities. However, crypto assets don't fit into any of these groups, due to their volatile prices and being influenced by factors different from traditional stocks or currencies.
Separate floating-point assets and stablecoins.
Researchers recommend assigning separate risk weights to crypto assets, while also calling for a distinction between "floating" assets with freely fluctuating prices and "Peg " assets like stablecoins , which aim to maintain stable value. The central argument revolves around the unpredictability of price fluctuations in Bitcoin, Ether, and other assets, which can change rapidly, increasing the likelihood that traders will be unable to recoup losses in time, especially when using leveraged Capital .
The group proposes building a benchmark index for crypto assets that combines both floating-value and stablecoins to reflect overall behavior and help the entire ecosystem more accurately estimate overall volatility. This index would assist regulators and financial institutions in calculating margin requirements more accurately by monitoring market developments, allowing for adjustments to collateral requirements based on real-world conditions and protecting both traders and institutions from unexpected shocks.
The working paper reflects a broader shift in regulators' views on crypto assets. Instead of ignoring or restricting them, the Fed is preparing mechanisms to safely integrate crypto assets into the financial system. Last December, the Fed reversed guidance issued in 2023 that limited the extent of bank involvement in crypto-related activities.
The updated approach suggests that banks and businesses can operate within a clearer and more consistent set of rules, making it easier for financial institutions to offer services related to crypto assets while maintaining security standards.
The Fed has also discussed the possibility of allowing crypto asset companies access to specialized bank accounts, often referred to as “skinny” master accounts, which allow businesses to connect directly to the central banking system but with fewer privileges than full-service accounts. This approach could improve oversight while still creating room for innovation.
