Fed Paper Flags Volatility Risk, Calls for New Margin Rules on Crypto Swaps

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The Federal Reserve is weighing a major shift in how banks and trading firms must collateralize their crypto derivative positions. A working paper published Wednesday proposes that crypto be carved out as a separate asset class for initial margin purposes on uncleared trades.

According to the analysis, the current standardized framework used for margin calculations fails to capture the sharp price swings inherent to digital assets. The existing model groups risk under categories such as interest rates, foreign exchange, equities and commodities. The authors argue that crypto fits none of them.

The paper puts forward a new system that assigns distinct risk weights to floating cryptocurrencies like Bitcoin, BNB, Ether, Cardano, Dogecoin and XRP, while treating pegged tokens such as stablecoins separately. This bifurcation reflects the different risk profiles within the broader crypto ecosystem.

In addition, the researchers suggest that a blended index consisting of floating assets and stablecoins could be developed. Such a tool would help standardize how volatility is measured, allowing regulators and firms to apply more precise margin requirements going forward.