Fitch warns bitcoin-backed securities carry speculative-grade risks

Credit rating agency Fitch Ratings has flagged a high degree of risk in Bitcoin-backed securities, saying such products carry “heightened risks” that are “consistent with speculative-grade credit profiles.” Fitch said the assessment could complicate the expansion of crypto-linked credit products among institutional investors.

Fitch described Bitcoin-backed securities as instruments structured by pooling Bitcoin or Bitcoin-linked assets and issuing debt against that collateral. The agency pointed to Bitcoin’s “inherent” price volatility and counterparty risks in these structures, and referenced the wave of crypto lender failures during the 2022–2023 downturn, a likely reference to BlockFi and Celsius, as examples of how collateral-backed models can unravel.

Fitch warned that “Bitcoin’s price volatility is a main risk consideration,” noting that breaches of coverage levels — the ratio of Bitcoin collateral to the amount of debt issued — can rapidly erode collateral, trigger margin calls and force liquidations. Fitch also noted its views may influence how banks, asset managers and other institutions assess such emerging financial instruments.

The agency contrasted these credit and securitized instruments with spot Bitcoin ETFs, which it did not reference in the assessment, and said ETF adoption could contribute to “a more diverse holder base” and “potentially dampen” volatility.

Key Topics

Crypto, Fitch Ratings, Bitcoin-backed Securities, Bitcoin, Blockfi, Celsius