Crypto Industry Faces Regulatory Crossroads as Fitch Warns on Bitcoin Securities and Coinbase Challenges Stablecoin Rules

Credit Rating Agency Raises Concerns Over Bitcoin-Backed Products

The cryptocurrency industry confronts mounting regulatory scrutiny on multiple fronts as traditional financial gatekeepers and federal lawmakers grapple with how to oversee digital asset markets.

Fitch Ratings issued a stark warning Monday about Bitcoin-backed securities, declaring that these financial instruments carry "heightened risks" consistent with speculative-grade credit profiles ^[1]. The assessment could significantly impact how institutional investors approach crypto-linked credit products, given Fitch's position as one of three major U.S. credit rating companies whose evaluations heavily influence banks and asset managers ^[1].

Bitcoin-backed securities typically involve pooling Bitcoin or Bitcoin-related assets and issuing debt against that collateral ^[1]. According to Fitch, the inherent price volatility of Bitcoin presents the main risk consideration, as sharp declines can cause coverage ratios—the relationship between Bitcoin collateral and issued debt—to fall below required thresholds, triggering margin calls and forced liquidations ^[1].

The rating agency specifically referenced the collapse of crypto lenders during the 2022-2023 downturn, likely alluding to firms like BlockFi and Celsius, as cautionary examples of how rapidly collateral-backed models can fail during market stress ^[1]. "Bitcoin's price volatility is a main risk consideration," Fitch stated, warning that breaches of coverage levels could quickly erode collateral value and crystallize losses ^[1].

Stablecoin Rewards Become Flashpoint in Congressional Debate

Meanwhile, Coinbase, one of the largest U.S.-based crypto exchanges, may withdraw support for the CLARITY Act if the legislation restricts stablecoin reward programs, according to a Bloomberg report ^[2]. The potential pullback comes as Congress prepares to mark up the bill in the Senate, with action expected around January 15 ^[2].

For Coinbase, stablecoin rewards represent a core revenue component rather than a peripheral offering. The exchange shares in interest income generated from reserves backing USD Coin (USDC), the widely used stablecoin issued by Circle, in which Coinbase holds a minority stake ^[2]. Bloomberg estimates that stablecoin-related revenue may have reached approximately $1.3 billion in 2025 ^[2].

The exchange currently offers roughly 3.5% rewards to Coinbase One customers, creating a predictable revenue stream even during periods of reduced trading activity ^[2]. These programs encourage users to maintain USDC on the platform, but have sparked debate over whether such rewards resemble traditional banking products like interest-bearing accounts or represent crypto-specific consumer incentives ^[2].

Banking groups contend that allowing yield on stablecoins could divert deposits from traditional banks, potentially reducing lending capacity for households and small businesses ^[2]. Coinbase and other crypto advocates counter that treating rewards like bank interest would stifle innovation, diminish U.S. platform competitiveness globally, and risk pushing users to offshore alternatives ^[2].

Divergent Regulatory Approaches

While Fitch's assessment focuses narrowly on credit and securitized instruments where repayment depends directly on underlying collateral value, it notably does not address spot Bitcoin exchange-traded funds, which function as equity-like investment vehicles rather than credit products ^[1]. The rating agency even suggested that ETF adoption could contribute to "a more diverse holder base" that may "potentially dampen" Bitcoin's price volatility during market stress ^[1].

The CLARITY Act aims to establish clearer market structure rules for digital assets by defining categories including digital commodities, investment contracts, and payment stablecoins ^[2]. However, the legislation also signals Congress's expanding interest in stablecoin oversight and decentralized finance regulation ^[2].

Coinbase has not issued an official statement, but insiders speaking to Bloomberg indicate the exchange is carefully evaluating whether the final legislative text will permit continued reward offerings while maintaining alignment with U.S. law ^[2]. The company's potential withdrawal of support functions partly as a negotiation tactic, reflecting how essential stablecoin yield programs have become for regulated exchanges ^[2].