A Federal Reserve staff working paper released this week has put the spotlight on a critical gap in how the derivatives industry handles cryptocurrency exposure. Titled “Initial Margin for Crypto Currencies Risks in Uncleared Markets,” the analysis by Fed researchers argues that existing frameworks for calculating initial margin in over-the-counter (OTC) derivatives fail to adequately capture the extreme volatility and distinct risk profiles of digital assets.
**” The Federal Reserve’s latest research challenges the adequacy of current cryptocurrency risk models in uncleared derivatives markets, proposing that crypto assets warrant their own dedicated risk class within the ISDA Standardized Initial Margin Model (SIMM). By splitting crypto into ‘pegged’ (stablecoins) and ‘floating’ (unpegged assets like Bitcoin and Ethereum) buckets, and calibrating bespoke risk … Read more