The Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) stated that banks should hold sufficient reserves to fully cover losses from investments in cryptocurrencies.
The Basel Committee’s announcement came after the government of El Salvador expressed its willingness to use bitcoin as a legal tender, despite the high volatility of the cryptocurrency market.
Banks’ access to cryptocurrencies remains limited, but one way or another they are exposed to increased financial risks when working with digital assets, the committee members said. Therefore, BIS suggested that banks allocate sufficient capital to fully cover the losses they may incur when owning bitcoins.
The committee presented the rules for “weighing risks” for banks with access to different types of assets. It was proposed to divide cryptocurrencies into two groups. The first group includes tokenized traditional assets and stablecoins. They must follow the same rules that apply to bonds, loans, commodities, and stocks.
The second category concerns conventional cryptocurrencies, including bitcoin. They will be treated with a “conservative approach” as their risk ratio is 1250%. This means that any bank that owns bitcoin or another crypto asset will be required to have in stock an amount of fiat currency commensurate with its investment in digital assets.
“In this case, banks will have enough funds to cover their losses in the event of a fall in the rate of cryptocurrencies. This will protect depositors and preferred creditors from losses, ”the Basel Committee said.
Many participants in the cryptocurrency industry believe that the Basel Rules will discourage widespread adoption of cryptoassets among institutional investors. Back in August last year, bitcoin traded about $ 11,000. Largely due to the investments of large organizations in bitcoin, in April it managed to jump over the record $ 64,000 mark. However, today bitcoin is traded within $ 38,000, which was greatly influenced by regulatory pressure.