ISDA Analysis Supports Crypto Derivatives

In a white paper, ISDA assessed the "effectiveness of crypto-asset exposure hedging with futures and ETFs." ISDA found that the correlation between crypto-assets, for which there is a liquid two-way market ("Group 2a," i.e., Bitcoin and Ethereum,) and their respective futures and ETFs is "sufficiently high to support effective hedging." ISDA concluded that their findings "support the industry position that offsetting a Group 2a spot crypto asset against its futures or ETFs should be allowed."

The white paper was part of ISDA's response to a Basel Committee on Banking Supervision ("BCBS") consultation proposing a framework for the prudential treatment of banks' crypto-asset exposures (see related coverage). ISDA argued that the BCBS proposed framework would "lead to particularly punitive capital requirements for banks holding some types of crypto assets and disincentivize traditional financial intermediaries from playing an active role in crypto markets." ISDA noted in the white paper that it believes in "an appropriate, risk-sensitive capital framework for crypto assets" that would "allow banks to meet customer demand while ensuring capital levels are proportionate to the underlying risks."