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Banks around the world could soon be subject to new rules on digital assets, according to a report published on Friday. The proposed regulation divides cryptocurrencies into Group 1 - which includes assets such as fiat-based stablecoins - and Group 2 - which would include currencies such as Bitcoin.
Banks to Comply with New Cryptocurrency Rules Soon
According to reports, a Swiss global industry regulatory forum called the Basel Committee on Banking Supervision is considering new rules targeting banks dealing in cryptocurrencies.The proposed rules divide all digital assets into two groups. In general, the new regulations will not affect banks that deal in “Group 1” cryptocurrencies – mostly currencies that have other assets, such as fiat-backed stablecoins.
The so-called "Group 2" would include cryptocurrencies that have no assets of tangible value. A good example of an asset in this category is the world's largest cryptocurrency, Bitcoin. If the committee can agree on these rules, any bank that wants to deal with Group 2 will have to take extra precautions because of its higher volatility.
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One of the caveats is that the bank must have traditional capital equal to the Tier 2 cryptocurrency - a million dollars of Bitcoin would mean that the bank would have to raise an additional million dollars in capital.
The Basel Committee has been actively discussing cryptocurrencies. of 2019. In October 2022, it published a report that banks worldwide hold about $9 billion in digital assets.
Crypto Regulation After LUNA and FTX
Although several regulators have been actively involved in regulating digital assets for years, the dramatic events of 2022 added a lot of pressure. In May, LUNA collapsed when UST defaulted on its bond, sending shockwaves through the industry and triggering a series of bankruptcies. In addition to the billions lost by both retail and institutional investors, perhaps the biggest consequence of the collapse is the fall, which could prevent algorithmically stable coins from being issued for two years.
Sam Bankman-Fried's FTX, the world's second largest crypto exchange, recently filed for bankruptcy after it suspended withdrawals due to a severe "liquidity crisis". The chaos surrounding the chaos only grew when it was revealed that FTX violated its own terms of service by lending huge sums of user assets to Alameda's research, leaving a $10 billion hole in its books.
Although the ongoing "crypto winter" has slowed adoption, the industry has grown large enough that the White House released the first regulatory framework for digital assets in September. On December 8, the SEC released new reporting guidelines for crypto companies in response to recent disasters in the industry.
Despite the confusion, institutions have also shown increased interest in digital assets.
J.P Morgan has filed with the US Patent and Trademark Office to register its cryptocurrency wallet, despite its CEO repeatedly disparaging cryptocurrencies and recently comparing them to "favorite stones."
Source: https://tokenist.com/banks-worldwide-might-soon-have-to-back-bitcoin-with-traditional-capital/
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