The Basel Committee on Banking Supervision has conducted its second consultation on the regulatory treatment of crypto asset exposure. One of their proposals aims to cap Bitcoin holdings at 1%.
The Basel Committee divides crypto assets into 2 groups
The global crypto market has plummeted by a huge number over the past few weeks. This was triggered by the collapse of Terra’s native token LUNA and stablecoin UST. In order to forestall any potential risk to the financial system, the Basel Committee launched this proposal.
The proposal emphasized that the basic structure of the first consultation was retained. The crypto assets have been divided into two groups.
The first group includes eligible treatment under the existing framework with modifications. While the second holds unsecured crypto assets and stablecoins with ineffective stabilization mechanisms. This group will be subject to a new conservative regulatory treatment, she added.
BTC holding limits at 1%
Under the proposal, there will be no cap on large exposures to digital assets where there is no counterparty. Bitcoin (BTC) was given as an example. The Basel Committee proposes imposing a new limit on the second group.
A provisional limit of 1% of Tier 1 capital is set. However, it is checked regularly. According to big banks like JP Morgan Chase, that 1% can be anywhere in the billions of dollars. Bitcoin prices have fallen immensely since the beginning of the year. At press time, it is trading at an average price of $19,100.
Meanwhile, the first consultation suggested banks must hold enough capital to cover losses from BTC holdings.
However, the report states that given the rapid growth and volatility of the crypto market, they will be closely monitoring it during the consultation period. The rules can be tightened if deficiencies in the consultation proposals or new risk elements emerge in advance. The committee will be open to comments until the end of September.
Ashish believes in decentralization and has a keen interest in advancing blockchain technology, the cryptocurrency ecosystem, and NFTs. He aims to create awareness of the growing crypto industry through his writings and analysis. When he’s not writing, he’s playing video games, watching a thriller, or exercising outside. Reach me at [email protected]
The content presented may contain the personal opinion of the author and is subject to market conditions. Do your market research before investing in cryptocurrencies. The author or the publication assumes no responsibility for your personal financial loss.
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