Banks will face the toughest capital requirements for holding in Bitcoin and other cryptoassets in cryptocurrency in the efforts of global regulators to ward off risks from volatility from the political market.
On Thursday the Basel Committee on Banking Supervision said that the banking industry is facing increased risks from cryptoassets because of the potential for money laundering, reputational challenges and wild swings in prices that could lead to defaults.
The panel proposed that a 1,250% risk weight be applied to a bank's exposure to Bitcoin and certain other cryptocurrencies. In practice, that means that a bank may need to hold 1% in capital for each dollar worth of Bitcoin, based on an 8% minimum market requirement. Other assets with this highest-possible risk weighting include securitized products where banks have insufficient information about underlying exposures.
The growing of cryptoassets and related services has the potential to increase financial stability concerns and raise the risks of banks, the Basel Committee which includes the Federal Reserve and European Central Bank, said in the report. ' The capital will be sufficient to absorb a full off of the cryptoasset exposures without exposing depositors and other senior creditors of banks to a loss.
The proposed proposal is open to public comment before it comes into effect, and the committee said that these initial policies are likely to change several times as the market evolves. Special assets, such as tokens with values tied to real-world assets, are used for lower capital requirements.
This year, Crypto has exploded in popularity, with day traders and professionals alike looking for profits in Bitcoin, as well as the more obscure niches of the market. The feelings about modern innovations, the idea that it's a store of value similar to 'digital gold, and endorsements from big-name investors like Paul Tudor Jones and Stan Druckenmiller have all boosted the bull market.
Bitcoin jumped from about $1,000 in September through to a high of $63,000 in mid-April. However, prices have decreased within the last month, falling back to $37,000 on the back of increased transparency in China and Elon Musk's criticism of Bitcoin's high energy cost.
While many banks have been cautious about trading crypto currency, the surge in consumer interest is driving financial firms such Interactive Brokers Group Inc. and Robinhood Markets Inc. to expand into the market. Standard Chartered Plc said this month that it would set up a joint venture to buy and sell Bitcoins.
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