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Banks will face the toughest capital requirements for holdings in bitcoins and other cryptoassets in line with global regulators’ plans to prevent threats to financial stability from volatile markets.
The Basel Committee on Banking Supervision said on Thursday that the banking industry faces heightened risks associated with cryptoassets due to the possibility of money laundering, reputation problems and sharp price fluctuations that could lead to default.
The group has proposed applying a 1250% risk weight to the bank’s exposure to bitcoins and certain other cryptocurrencies. In practice, this means that a bank may need to hold a dollar in equity for every dollar of bitcoin based on a minimum capital requirement of 8%. Other assets with this maximum possible risk weight include securitized products for which banks do not have sufficient information on underlying exposures.
“The rise in cryptoassets and related services could raise concerns about financial stability and heighten the risks facing banks,” said the Basel Committee, which includes the Federal Reserve and the European Central Bank. Report. “There will be enough capital to absorb the full write-off of cryptoasset risks without exposing depositors and other senior lenders of banks to losses.”
Bitcoin added about 5% and reached $ 38,226 by 11:43 am in London.
Read more at Bitcoin response to the Basel plan
The proposal is open for public comment before it goes into effect, and the committee said the original policy is likely to change several times as the market develops. The report does not specify a timeline, but the process of agreeing and implementing the Basel Rules around the world can usually take years.
Some assets, such as tokens with a value tied to real assets and stablecoins, have lower capital requirements.
The popularity of cryptocurrency has skyrocketed this year, with both day traders and professionals hunting for profits in bitcoin as well as in more obscure market niches. Enthusiasm for institutional adoption, the idea that it is a store of value akin to digital gold, and the backing of big investors like Paul Tudor Jones and Stan Druckenmiller have fueled the bull market.
Bitcoin jumped from $ 10,000 in September last year to $ 63,000 in mid-April. However, prices collapsed last month to $ 37,000 amid stricter regulatory oversight in China and Elon Musk’s criticism of Bitcoin’s high energy costs.
Read more: Coinbase Teams up with 401 (k) provider to offer cryptocurrency
While many banks are wary of cryptocurrency trading, the surge in consumer interest is spurring financial companies, including Interactive Brokers Group Inc. and Robinhood Markets Inc. to expand in the market. Standard Chartered Plc announced this month that it would set up a joint venture to buy and sell bitcoins.
– Assisted by Lynn Thomasson
(Updates with bitcoin price reaction, timetable, stablecoins from the fifth paragraph.)