Saturday, March 2, 2024

Just In: Basel Committee Proposes Cap For Banks’ Bitcoin Holding

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The Basel Committee on Banking Supervision issued its second consultation on the prudential treatment of the crypto asset exposure. One of its proposals seeks to set a cap for Bitcoin holding at 1%.

Basel Committee divides crypto assets into 2 groups

The global crypto market has tumbled 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 prevent every potential risk to the financial system, Basel Committee has landed this proposal.

The proposal highlighted that the basic structure from the first consultation has been maintained. The crypto assets have been divided into two groups.

The first group includes eligible treatment under the existing Framework with modification. While the second one holds unbacked crypto assets and stablecoins with ineffective stabilisation mechanisms. This group will be subject to a new conservative prudential treatment, it added.

BTC holding limits to 1%

As per the proposal, there will be no large exposure limit on any digital asset where there is no counterparty. It mentioned Bitcoin (BTC) as an example. Basel Committee suggests putting a new exposure limit over the second group.

A provisional limit of 1% of the Tier 1 capital will be set. However, it will be reviewed periodically. In the view of big banks like JP Morgan Chase, this 1% can amount anywhere in billion dollars. The Bitcoin prices have dropped immensely since the beginning of the year. It is trading at an average price of  $19,100, at the press time.

Meanwhile, the first consultation proposed that banks need to hold enough capital to cover any loss over BTC holdings.

However, the report said that witnessing the rapid growth and Volatile nature of the Crypto market, they will be closely monitoring it during the consultation period. Rules can be tightened If any shortcomings in the consultation proposals or new risk elements emerge ahead. While the committee will be open for comments by the end of September.

Ashish believes in Decentralisation and has a keen interest in evolving Blockchain technology, Cryptocurrency ecosystem, and NFTs. He aims to create awareness around the growing Crypto industry through his writings and analysis. When he is not writing, he is playing video games, watching some thriller movie, or is out for some outdoor sports. Reach me at [email protected]

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.


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