Global regulators have said cryptocurrencies such as bitcoin should come with the strictest bank capital rules to avoid endangering the financial system as a whole if their value suddenly crashes.
The Basel Committee on Banking Supervision, made up of regulators from the world’s major financial centers, is proposing a “new conservative prudential treatment” for crypto-assets that would require banks to set aside enough capital to cover 100% of potential losses.
This would be the highest capital requirement of any asset, illustrating that cryptocurrencies and related investments are considered to be much riskier and more volatile than conventional stocks or bonds.
“Cryptoassets have raised a range of concerns, including consumer protection, money laundering and terrorist financing, and their carbon footprint,” the Basel Committee said. While most regulated banks currently have limited exposure to cryptocurrencies, the committee warned that “the growth of crypto-assets and related services has the potential to raise financial stability issues and increase the risks to which are facing the banks ”.
The world’s most powerful banking standards body on Thursday warned that some crypto assets have proven to be highly volatile, meaning they could “pose risks to banks as exposures increase, including risk. liquidity; credit risk; market risk; operational risk (including fraud and cyber risks); risk of money laundering / terrorist financing; and legal and reputational risks ”.
However, he said looser rules could apply to stablecoins – a new form of digital asset typically tied to the value of a traditional currency – which may only require a level of capital rules applied to coins. traditional assets such as bonds, loans, deposits, stocks or commodities.
The committee’s proposals, which will now be subject to consultation, aim to help protect the global financial system in the event of a fall in cryptocurrency prices.
The price of bitcoin rose more than 5% after the report was released, to $ 37,361. However, the cryptocurrency has fallen 40% since reaching all-time highs of over $ 64,000 (£ 45,000) in mid-April.
If passed, the committee’s capital requirements could deter some banks from trading cryptocurrencies, which have risen in value over the past year, but have proven to be incredibly volatile, due to the fact that they are not backed. to no other underlying asset such as dollars or gold to help entrench the price.
Lenders are increasingly divided over whether to adopt or avoid cryptocurrencies, which are growing in popularity among customers. Goldman Sachs and Standard Chartered have launched their own cryptocurrency trading desks to take advantage of their rapid growth, while HSBC has pledged to avoid the asset.
UK lender NatWest has said it will refuse to serve business customers who accept cryptocurrency payments alongside those made by debit, credit cards and cash, even though that could mean turning down notable businesses including the company. ethical cosmetics company Lush and the office-sharing company WeWork. .
While most authorities are starting to crack down on the use of cryptoassets, some are taking a more open approach. El Salvador announced this week that it will become the first country to adopt bitcoin as legal tender, despite repeated warnings from central banks that investors should be prepared to lose all of their money.
The Chinese regulator plunged bitcoin prices last month when it banned banks and payment companies from offering their customers services involving cryptocurrencies and warned of the risks of trading in crypto-assets.
Meanwhile, Bank of England Governor Andrew Bailey has told investors they should be prepared to lose all their money if they get into cryptocurrencies because they are not covered by the cryptocurrencies. consumer protection regimes.
Regulators at the European Central Bank compared the meteoric rise of bitcoin to other financial bubbles such as the ‘tulip mania’ and the South Sea bubble, which sent investors into a frenzy before the bubbles broke. erupted in the 17th and 18th centuries.