The Fed Takes Another Big Step for Cryptocurrencies! Here Are the Details

The US Federal Reserve (FED) has proposed classifying cryptocurrencies as a separate asset class for derivatives markets.

According to a statement, the FED has proposed classifying cryptocurrencies as a separate asset class from traditional stocks or currencies and subjecting them to derivative collateral regulations.

This was interpreted as a measure to manage the risks in the highly volatile cryptocurrency market and to create a secure transaction environment within the institutional financial system.

Federal Reserve researchers Anna Amirzanova, David Lynch, and Annie Zang stated in a study that cryptocurrencies are significantly more volatile than traditional asset classes and are not compatible with the current asset classification model (SIMM) risk categories.

At this point, FED researchers state that cryptocurrencies should be assigned separate risk weights. Specifically, they proposed a different approach between volatile crypto assets like Bitcoin and Ethereum, whose prices fluctuate freely, and stablecoins, which aim for value stability.

The central bank also stated that investors would need to deposit higher collateral to prevent liquidation proceedings.

According to experts, this proposal from the FED reflects a change in the FED’s approach to cryptocurrencies. Instead of simply regulating cryptocurrencies, it aims to integrate them into the financial system.

As you may recall, last December the FED also repealed its 2023 guidance restricting banks’ cryptocurrency activities, thus removing barriers to banks entering the cryptocurrency business.

*This is not investment advice.

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