Why can using bitcoin as margin bring liquidation closer?

When bitcoin or ether sits in an account as margin, the exchange or broker does not count it at full market value — it applies a discount called a haircut. If the coin's price falls, the collateral loses value at the same time as any position pointing the same way. For the same market move, an account margined in crypto burns through margin faster than one funded in dollars or stablecoins, and gets closer to liquidation.

What is a haircut, and why isn't collateral counted at full value?#

A haircut is the percentage deducted from an asset's market value before it counts as margin. It covers the risk that by the time collateral has to be sold, it is worth less, or cannot be sold quickly without slippage.

Haircuts vary by venue. In Binance Futures Multi-Assets Mode, according to the exchange's FAQ, BTC, ETH and BNB carry a 5% haircut: $1,000 of BNB counts as $950 of margin. In the US, the regulator sets a floor: under CFTC Staff Letter 26-05, a futures commission merchant (FCM) that sets its own haircut for bitcoin or ether must apply at least 20%. If several clearing houses accept the same asset, the FCM uses the highest of their haircuts.

Why does a price drop hit a crypto-margined account twice?#

Take a hypothetical example. The account holds 1 BTC worth $100,000 with a 20% haircut, so $80,000 of recognized margin. The trader opens a $200,000 long. The price falls 10%:

• the position loses $20,000;
• the collateral drops to $90,000, recognized at $72,000 after the haircut — another $8,000 gone;
• recognized margin falls from $80,000 to $52,000, or 35%.

Had the account held $100,000 in dollars instead, the same position would cut margin by $20,000, or 20%. The 15-percentage-point gap exists only because the collateral and the position depend on the same price. Risk managers call this wrong-way risk: collateral weakens exactly when it is needed most. An analysis by crypto.news runs a similar calculation: $100,000 of bitcoin with a 20% haircut counts as $80,000, and after a 15% drop only $68,000.

What did the CFTC's new guidance change for crypto margin in the US?#

On September 24, 2026, three CFTC divisions updated their crypto FAQs, adding answers on investing customer funds in tokenized forms of permitted investments and on using blockchains for recordkeeping. The answers build on Staff Letter 26-05 of February 6, 2026, which lets qualifying FCMs accept crypto as customer margin under a set of conditions.

Key conditions in Letter 26-05:

• for the first 3 months, an FCM may accept only bitcoin, ether and payment stablecoins;
• the FCM's own bitcoin and ether positions carry a 20% capital charge, payment stablecoins 2%;
• clearing houses must mark collateral to market daily, set haircuts with stressed conditions in mind, and review them at least monthly.

Being able to post bitcoin instead of dollars does not change the fact that its value moves every minute.

Why is a large single-coin collateral balance valued more strictly?#

The more collateral sits in one asset, the harder it is to sell in a liquidation without moving the price. That is why many venues use tiered haircuts. In OKX's rules, for example, the first 0–20 BTC count at a 0.98 discount rate, the next tier at 0.975, then 0.97, with the rate stepping down by 0.005 per tier after that. In the exchange's own example, an account holding 100 BTC saw adjusted equity fall from roughly $5.975 million to about $5.786 million under the new rules.

The consequence: doubling collateral does not always double usable margin. A large account concentrated in one coin should size margin by the actual tiers, not by market value.

When does crypto collateral act as a hedge rather than a second hit?#

The double hit happens when the position and the collateral point the same way. If a trader holds bitcoin as collateral and opens a short of the same size, a price drop reduces the collateral's value but produces a gain on the short. The two partly offset each other.

The CFTC reflects similar logic: under Letter 26-05, when bitcoin collateralizes a contract that is both based on and denominated in bitcoin, the FCM applies only the clearing house's haircut rather than the stricter 20% rule. The offset is not perfect, though: the haircut, fees and funding still apply, and in a sharp move the position can shift faster than margin is recalculated.

What are the limits and risks of collateral haircuts?#

• A haircut does not protect against a drop of the same size. As crypto.news points out, a 20% haircut does not guarantee protection against a 20% price decline: with leverage, the position loses more than the collateral's value changes.
• Haircuts change. Venues and clearing houses revise them as conditions shift, including under stress. Margin can shrink without a single trade in the account.
• Liquidation sells collateral into a falling market. Forced sales happen when the order book is already thin, so the realized price can land below the model price.
• A stablecoin is not a dollar either. For payment stablecoins, the CFTC leaves the FCM to set its own haircut on fair market value, and any deviation from $1 reduces margin.
• Rules differ. Multi-currency margin modes, eligible assets and haircut tiers vary by venue; a general rule does not replace reading the terms of a specific account.

For scale: around the September 25 quarterly expiry, bitcoin traded near $85,000, according to CoinDesk. At that price a 10% move is $8,500 per BTC of collateral, and the haircut applies on top of that.