Basel Committee which was set up for Banking Supervision in its second consultation on crypto-asset seeks to bring into force a cap on Bitcoin holdings by Banks at 1%.
Basel Committee Separates Cryptocurrency Into Two Groups
The crypto market is facing its biggest crash since its very inception. The latest crash has been catalyzed by the collapse of Terra’s native token LUNA and Stablecoin UST. The Basel Committee has brought forth this proposal to prevent any potential risk to the financial system.
The proposal deems to make clear the path from the first consultation has been maintained. The crypto assets have been divided into two groups.
The first group includes those entities which are eligible under the existing Framework with modification while the second group holds unbacked crypto-assets and stablecoins with ineffective stabilization mechanisms. This group will be subject to a new conservative prudential treatment, it added.
Bitcoin holding Capped At 1%
There is no proposal to limit any digital asset where there is no counterparty. However, it did mention that a limit has been set for Bitcoin while Basel Committee suggests putting a new exposure limit over the second group.
A cap of 1% has been set on the Tier 1 capital. The cap will be reviewed periodically. The cap of 1% could be a sizeable account for banks like JP Morgan Chase; this 1% can amount anywhere in billion dollars.
Bitcoin prices have tanked since the beginning of the year and are trading at an average price of $19,100, at the press time. The first consultation had proposed setting up a fund to hold capital to cover any loss over BTC holdings.
The report has underlined the rapid growth and at the same time the highly volatile nature of cryptocurrencies. The report also underlines the fact that it will closely monitor the crypto market. New rules will be framed and any shortcomings in the consultation proposals or new emerging risk elements will be judiciously taken care.