CFTC pilot opens path for crypto as collateral in derivative markets
The US Commodity Futures Trading Commission has issued updated guidance for tokenized collateral in derivatives markets, paving the way for a pilot program to test how cryptocurrencies can be used as collateral in derivatives markets.
Collateral in derivatives markets serves as a security deposit, acting as a guarantee to ensure that a trader can cover any potential losses.
The digital asset pilot, announced by CFTC acting chairman Caroline Pham on Monday, will allow futures commission merchants (FCM) — a company that facilitates futures trades for clients — to accept Bitcoin (BTC), Ether (ETH) and Circle’s stablecoin USDC (USDC) for margin collateral.
The CFTC pilot is another step toward integrating crypto into regulated markets, and Circle CEO Heath Tarbert said it will also protect customers, reduce settlement frictions and assist with risk reduction.
Pham said in a statement that the pilot program also “establishes clear guardrails to protect customer assets and provides enhanced CFTC monitoring and reporting.”
As part of the pilot, participating FCMs will be subject to strict reporting criteria, which require weekly reports on total customer holdings and any significant issues that may affect the use of crypto as collateral.
Updated CFTC guidance for tokenized assets
The CFTC’s Market Participants Division, Division of Market Oversight, and Division of Clearing and Risk also issued updated guidance on the use of tokenized assets as collateral in the trading of futures and swaps.
The guidance covers tokenized real-world assets, including US Treasury’s money market funds, and topics such as eligible tokenized assets, legal enforceability, segregation and control arrangements.
Pham said in an X post on Monday that the “guidance provides regulatory clarity and opens the door for more digital assets to be added as collateral by exchanges and brokers, in addition to US Treasurys and money market funds.”
The Market Participants Division also issued a “no-action position” on specific requirements regarding the use of payment stablecoins as customer margin collateral and the holding of certain proprietary payment stablecoins in segregated customer accounts.
A CFTC Staff Advisory that restricted FCMs’ ability to accept crypto as customer collateral, Staff Advisory 20-34, was also withdrawn because it is “outdated and no longer relevant,” in part due to the GENIUS Act.
Crypto execs back CFTC move
Several crypto executives applauded the move by the CFTC.
Katherine Kirkpatrick Bos, the general counsel at blockchain company StarkWare, said the use of “tokenized collateral in the derivatives markets is MASSIVE.”
Related: US regulators dismiss SEC-CFTC merger rumors, move to dispel crypto ‘FUD’
“Atomic settlement, transparency, automation, capital efficiency, savings. Feels abrupt but who recalls the tokenization summit in 2/24, a glimmer of hope in the darkness,” she said.
Coinbase chief legal officer Paul Grewal also supported the action, calling Staff Advisory 20-34 a “concrete ceiling on innovation.”
“It relied on outdated info, went well beyond the bounds of regulation and frustrated the goals of the PWG.”
Salman Banaei, the general counsel at layer-1 blockchain the Plume Network, said it was a “major move” by the CFTC, and another push toward wider adoption.
“This is a step toward the use of onchain infra to automate settlement for the biggest asset class in the world: OTC derivatives, swaps,” he added.
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Politics
Live music venues warn of ‘devastating consequences’ of budget tax changes in letter to Sir Keir Starmer
Tax changes announced in the budget could have “devastating, unintended consequences” on live music venues, including widespread closures and job losses, trade bodies have warned.
The bodies, representing nearly 1,000 live music venues, including grassroots sites as well as arenas such as the OVO Wembley Arena, The O2, and Co-op Live, are calling for an urgent rethink on the chancellor’s changes to the business rates system.
If not, they warn that hundreds of venues could close, ticket prices could increase, and thousands could lose their jobs across the country.
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Business rates, which are a tax on commercial properties in England and Wales, are calculated through a complex formula of the value of the property, assessed by a government agency every three years. That is then combined with a national “multiplier” set by the Treasury, giving a final cash amount.
The chancellor declared in her budget speech that although she is removing the business rates discount for small hospitality businesses, they would benefit from “permanently lower tax rates”. The burden, she said, would instead be shifted onto large companies with big spaces, such as Amazon.
But both small and large companies have seen the assessed values of their properties shoot up, which more than wipes out any discount on the tax rate for small businesses, and will see the bills of arena spaces increase dramatically.
In the letter, coordinated by Live, the trade bodies write that the effect of Rachel Reeves’s changes are “chilling”, saying: “Hundreds of grassroots music venues will close in the coming years as revaluations drive costs up. This will deprive communities of valuable cultural spaces and limit the UK creative sector’s potential. These venues are where artists like Ed Sheeran began their career.
“Ticket prices for consumers attending arena shows will increase as the dramatic rise in arena’s tax costs will likely trickle through to ticket prices, undermining the government’s own efforts to combat the cost of living crisis. Many of these arenas are seeing 100%+ increases in their business rates liability.
“Smaller arenas in towns and cities across the UK will teeter on the edge of closure, potentially resulting in thousands of jobs losses and hollowing out the cultural spaces that keep places thriving.”
The full letter from trade bodies to the prime minister.
They go on to warn that the government will “undermine its own Industrial Strategy and Creative Sector Plan which committed to reducing barriers to growth for live events”, and will also reduce spending in hotels, bars, restaurants and other high street businesses across the country.
To mitigate the impact of the tax changes, they are calling for an immediate 40% discount on business rates for live venues, in line with film studios, as well as “fundamental reform” to the system used to value commercial properties in the UK, and a “rapid inquiry” into how events spaces are valued.
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Sky’s Jess Sharp explains how the budget could impact your money
In response, a Treasury spokesperson told Sky News: “With Covid support ending and valuations rising, some music venues may face higher costs – so we have stepped in to cap bills with a £4.3bn support package and by keeping corporation tax at 25% – the lowest rate in the G7.
“For the music sector, we are also relaxing temporary admission rules to cut the cost of bringing in equipment for gigs, providing 40% orchestra tax relief for live concerts, and investing up to £10m to support venues and live music.”
The warning from the live music industry comes after small retail, hospitality and leisure businesses warned of the potential for widespread closures due to the changes to the business rates system.
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Sky’s political editor Beth Rigby challenged Prime Minister Sir Keir Starmer on the tax rises in the budget.
Sky News reported after the budget that the increase in business rates over the next three years following vast increases in the assessed values of commercial properties has left small retail, hospitality and leisure businesses questioning whether their businesses will be viable beyond April next year.
Analysis by UK Hospitality, the trade body that represents hospitality businesses, has found that over the next three years, the average pub will pay an extra £12,900 in business rates, even with the transitional arrangements, while an average hotel will see its bill soar by £205,200.
Read more: Hospitality pleads for ‘lifeline’
A Treasury spokesperson said their cap for small businesses will see “a typical independent pub pay around £4,800 less next year than they otherwise would have”.
“This comes on top of cutting licensing costs to help more venues offer pavement drinks and al fresco dining, maintaining our cut to alcohol duty on draught pints, and capping corporation tax,” they added.
The Chancellor Rachel Reeves has acknowledged there were “too many leaks” in the run-up to last month’s budget.
The flow of budget content to news organisations was “very damaging”, Ms Reeves told MPs on the Treasury select committee on Wednesday.
“Leaks are unacceptable. The budget had too much speculation. There were too many leaks, and much of those leaks and speculation were inaccurate, very damaging”, she said.
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The cost of UK government borrowing briefly spiked after news reports that income taxes would not rise as first expected and Labour would not break its manifesto pledge.
An inquiry into the leaks from the Treasury to members of the media is to take place. But James Bowler, the Treasury’s top official, who was also giving evidence to MPs, would not say the results of it would be published.
Committee chair Dame Meg Hillier asked if the group of MPs could see the full inquiry.
“I’d have to engage with the people in the inquiry about the views on that”, replied Mr Bowler, permanent secretary to the Treasury.
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OBR leak ‘a mistake of such gravity’
The entire contents of the budget ended up being released 40 minutes early via independent forecasters, the Office for Budget Responsibility (OBR).
A report into this error found the OBR had uploaded documents containing their calculations of budget numbers to a link on the watchdog’s website it had mistakenly believed was inaccessible to the public.
Tax rises ruled out
The chancellor ruled out future revenue-raising measures, including applying capital gains tax to primary residences and changing the state pension triple.
Committee member and former chair Dame Harriet Baldwin had noted that the chancellor’s previous statement to the MPs when she said she would not overhaul council tax and look at road pricing, turned out to be inaccurate.
During the budget, an electric vehicle charge per mile was introduced, as was an additional council tax for those with properties worth £2m or more.
Strategy, the largest Bitcoin treasury company, submitted feedback to index company MSCI on Wednesday about the proposed policy change that would exclude digital asset treasury companies holding 50% or more in crypto on their balance sheets from stock market index inclusion.
Digital asset treasury companies are operating companies that can actively adjust their businesses, according to the letter, which cited Strategy’s Bitcoin-backed credit instruments as an example.
The proposed policy change would bias the MSCI against crypto as an asset class, instead of the index company acting as a neutral arbiter, the letter said.
The MSCI does not exclude other types of businesses that invest in a single asset class, including real estate investment trusts (REITs), oil companies and media portfolios, according to Strategy. The letter said:
“Many financial institutions primarily hold certain types of assets and then package and sell derivatives backed by those assets, like residential mortgage-backed securities.”
The letter also said implementing the change “undermines” US President Donald Trump’s goal of making the United States the global leader in crypto. However, critics argue that including crypto treasury companies in global indexes poses several risks.
Related: Strive calls on MSCI to rethink its ‘unworkable’ Bitcoin blacklist
Crypto treasury companies can create systemic risks and spillover effects
Crypto treasury companies exhibit characteristics of investment funds, rather than operating companies that produce goods and services, according to MSCI.
MSCI noted that companies capitalized on cryptocurrencies lack clear and uniform valuation methods, making proper accounting a challenging task and potentially skewing index values.
Strategy held 660,624 BTC on its balance sheet at the time of this writing. The stock has lost over 50% of its value over the last year, according to Yahoo Finance.
Bitcoin (BTC) is also 15% below its value at the beginning of 2025, when it was trading over $109,000, meaning that the underlying asset has outperformed the equity wrapper.
The high volatility of cryptocurrencies may heighten the volatility of the indexes tracking these companies or create correlation risks, where the index performance would mirror crypto market performance, according to a paper from the Federal Reserve.
The “common use” of leverage by crypto traders amplifies volatility and lends to crypto’s fragility as an asset class, the Federal Reserve wrote.
MSCI’s proposed policy change, set to take effect in January, could also prompt treasury companies to divest their crypto holdings to meet the new eligibility criteria for index inclusion, creating additional selling pressure for digital asset markets.
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