• Global banking regulators must set aside enough capital to cover any Bitcoin loss.
• The Basel Committee on Banking Supervision comprises regulators from the world’s most important financial centers.
On Thursday, banking regulators proposed a new strict rule for BTC. This could be a conservative or cautious step that would prevent the widespread use of cryptocurrency by larger lenders.
The Basel Committee on Banking Supervision comprises the main regulators of the world’s financial centers. This committee proposed a double guide on the capital requirements for cryptocurrencies that banks hold. It would be the first rule for the nascent sector made to measure.
Bitcoin is the most popular cryptocurrency on the crypto market
El Salvador is the first country in the world to adopt BTC as legal tender. It is a revolutionary move that has emerged even though central banks worldwide have frequently warned Bitcoin investors about its potential risks.
Major economies, including the United States and China, have signaled an even tighter approach in recent weeks. In addition, they have developed plans to create their own central bank cryptocurrencies.
The Swiss-based Basel Oversight Committee commented that even though bank exposures to digital currencies are limited, it has seen continued growth and could increase global financial stability risks due to fraud. Cyberattacks, terrorist financing, and money laundering can affect the market if capital requirements are not mapped out.
Regulate cryptocurrencies to protect capital
Bitcoin and other cryptocurrencies have a value of $1.6 trillion worldwide. It is still small compared to the bank’s derivatives, loans, and other important assets.
The Basel requirements require banks to determine risk weights to the different assets on the books, adding up to establish general capital rules. Basel also proposes two large groups for cryptocurrencies.
The first group includes some stablecoins and traditional tokenized assets governed by existing requirements and treated like loans, bonds, stocks, deposits, or commodities.
The weighting would be around 0% for tokenized sovereign bonds and 1250% or the total value of the asset covered by capital.
The stablecoins value and group 1 cryptocurrency are linked to a traditional asset, such as the dollar, such as in the stablecoin Diem that Facebook has proposed.
Basel has said that since cryptocurrencies are based on a rapidly evolving technology such as blockchain, this could pose a greater likelihood of operational risks requiring an extra capital charge for all types.
Under Basel’s proposed rules, a risk weight close to 1,250% would translate into banks having to hold capital equal in value to their exposures to BTC and any other group 2 cryptocurrencies.
Bitcoin has gained value after the Basel Committee announcement, climbing by about 1.5% to $37,962 and seems to be on a continuous uptrend.