While Bitcoin (BTC) continues to see massive adoption, risk warnings also persist.
At this point, the latest warning came from the global credit rating agency Fitch Ratings.
Accordingly, Fitch stated that Bitcoin-backed securities carry speculative risk.
Bitcoin Warning Issued!
Fitch Ratings warns that Bitcoin-backed securities carry high market capitalization risk due to price volatility, structural complexity, and counterparty risks.
Fitch identified Bitcoin’s inherent price volatility and counterparty risk as the main risk factors.
The organization stated that a sudden drop in volatility could violate the collateral protection ratio, which indicates the ratio of the value of Bitcoin collateral to the issued debt. This could lead to a decrease in the value of the collateral and investor losses.
Because these instruments rely on Bitcoin as collateral, liquidation triggers can amplify losses.
At this point, Fitch stated that the 2022-2023 cryptocurrency market crash is concrete evidence of these structural flaws.
At this point, Fitch cited the bankruptcies of cryptocurrency lenders such as BlockFi and Celsius as examples, adding that these bankruptcies demonstrated how Bitcoin collateral-based models can quickly collapse during periods of market stress.
*This is not investment advice.
