Institutional Warnings Amidst Crypto Adoption
While Bitcoin (BTC) and cryptocurrencies are gaining rapid adoption, major institutions are issuing serious warnings about crypto.
One of these significant warnings came from the US credit rating agency Fitch.
Fitch's Concerns Regarding Bank Exposure
Accordingly, Fitch warned banks with large exposure to cryptocurrencies that they may experience a downgrade in their credit ratings.
In a recent report, Fitch noted that activities such as issuing stablecoins, tokenizing deposits, and using blockchain technology offer opportunities to increase profitability.
However, Fitch highlighted that these crypto technologies and initiatives also increase risks related to a bank's reputation, liquidity, operations, and regulatory compliance.
At this point, Fitch stated that it may reassess U.S. banks with large exposure to crypto assets negatively in the face of these escalating risks.
Addressing Crypto Risks for Banks
Fitch acknowledged that the improvement in the US regulatory environment has increased the security of crypto assets to some extent, but emphasized that it is still not sufficient and they carry high risks.
Therefore, Fitch stated that banks must adequately address the challenges of digital assets' high volatility, the anonymity of their holders, and the prevention of asset loss and theft. Only when these requirements are met will the profitability and benefits offered by digital assets be tangible, and risks will be significantly reduced.
Stablecoin Concerns and Systemic Risk
Fitch recently expressed specific concerns about stablecoins. The report highlighted that major banks like JPMorgan, Bank of America (BofA), Citi, and Wells Fargo are already involved in the crypto space.
It was stated that if stablecoin use becomes widespread, it could grow enough to affect the US Treasury market. In this scenario, the risk to the financial system could increase substantially.
As a result, Fitch has again warned banks that those conducting significant cryptocurrency activities may be subject to negative credit ratings or actions.