Bitcoin and other cryptocurrencies in Basel Committee’s highest risk category
On Thursday 10th April 2021, the Basel Committee on Banking Supervision (BCBS) announced capital requirements for banks that chose to hold Bitcoin and other cryptocurrencies.
The Basel Committee on Banking Supervision (BCBS) is an international committee formed to develop standards for banking regulation. The committee is widely considered to be the world’s most influential banking regulator.
Given that the Basel mandated minimum capital requirement is 8%, the committee is effectively suggesting that banks hold one dollar in capital for each dollar of Bitcoin they hold.
The high capital requirements are due to the committee’s worries that crypto-assets have the potential to raise financial stability concerns and increase risks faced by banks.
The Basel Committee expects comments from stakeholders before the proposal would be implemented. Besides, the committee also announced that the policies would change over time as the cryptocurrency market evolves.
What does this mean?
Despite the high capital requirements, the fact that the Basel Committee has set requirements for banks holding cryptocurrency will likely be a good thing for the cryptocurrency market in the long run. This is because it acknowledges cryptocurrency as an asset. With more regulation, more people may flock to cryptocurrency as it shrugs off its perception as an illegitimate or fraudulent way to make money.
- The West Australia