Bitcoin Tops $38,000 Due to Basel Committee’s “Conservative Rules” for Bitcoin?

Bitcoin Suddenly Takes Off, Has Basel Committee on Banking Supervision Something to Do With It?

On Thursday, global banking regulator the Basel Committee on Banking Supervision proposed that banks must set aside enough capital to fully cover any losses from bitcoin holdings, a “conservative” measure that could prevent large bank lenders from using cryptocurrencies on a large scale.

The Basel Committee on Banking Supervision, made up of regulators from the world’s major financial centers, proposed rules on capital requirements for banks’ crypto holdings in its first customized rules for the emerging industry.

Despite repeated warnings from major central banks around the world that investors in cryptocurrencies must be prepared to lose money, the Central American country of El Salvador became the first country in the world to adopt bitcoin as legal tender this week.

In recent weeks, major economies including China and the U.S. have said they will take tougher measures against cryptocurrencies, while making plans to develop their own central bank digital currencies.

The Switzerland-based Basel Committee said in a public consultation paper that while banks have limited exposure to crypto assets, their continued growth could increase risks to global financial stability if capital requirements are not introduced.

Bitcoin and other cryptocurrencies are now worth about $1.6 trillion globally, a figure that remains small compared with banks’ holdings of loans, derivatives and other major assets.

Basel’s rules require banks to assign “risk weights” to different types of assets on their books and add those weights to determine overall capital requirements.

For crypto assets, Basel has proposed two main groups.

The first group includes certain tokenized traditional assets and stablecoins, which would be subject to existing rules and treated in the same way as bonds, loans, deposits, stocks or commodities.

This means that the risk weighting may range between 0% and 1,250% of the tokenized sovereign bond or the full value of the assets covered by the capital.

The value of stablecoins and other Group 1 crypto assets are tied to traditional assets, such as the U.S. dollar in Facebook’s proposed Diem stablecoin.

However, given that crypto assets are based on rapidly evolving new technologies such as blockchain, this could increase the potential for operational risk and require “additional” capital requirements for all types, Basel said.

“Unique risks”
The second group includes cryptocurrencies like bitcoin, which will receive a new “conservative prudential treatment” with a risk weight of 1,250 percent because of their “unique risks.

Bitcoin and other cryptocurrencies are not tied to any underlying asset.

Under Basel rules, the 1,250 percent risk weight means banks must hold capital at least equal to the value of their exposure to bitcoin or other Group 2 crypto assets.

It added: “This capital will be sufficient to absorb full loss crypto asset exposures without loss to depositors and other senior creditors of the bank.”

Few other assets receive such “conservative” treatment under current Basel rules, including investment funds or securities for which banks do not have sufficient information about underlying exposures.

Bitcoin’s value has fluctuated dramatically, hitting an all-time high of about $64,895 in mid-April before falling to about $31,000 this week.

Banks have varying preferences for cryptocurrencies, with HSBC saying it has no plans to build a cryptocurrency trading desk because the digital currency is so volatile. Goldman Sachs, meanwhile, relaunched its crypto trading desk in March.

Given the fast-moving nature of crypto assets, further public consultation on capital requirements may take place before final rules are published, Basel said.

In addition, central bank digital currencies are not included in its proposal.

Seemingly positive, but actually positive?
Following this news, bitcoin rose in response, surpassing $38,000 and gaining more than 10% in 24 hours, the biggest gain so far this month.

The proposed rules released by the Basel Committee on Banking Supervision appear to take tougher measures against bitcoin, but analysts see it as a positive.

Bitcoin Tops ,000 Due to Basel Committee's "Conservative Rules" for Bitcoin?

Crypto analyst PlanB said that

“Good news: Bitcoin is now officially an asset class and it cannot be banned or criminalized.
More good news: this proposal (which must be transformed into a capital decree as well as becoming a local banking law) was made before El Salvador made bitcoin a fiat currency. btc now becomes yet another foreign currency.”

Posted by:CoinYuppie,Reprinted with attribution to:
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