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Regulators from the world’s top financial centers have asked banks to set aside enough provisions to meet instant losses in full on any bitcoin holdings. The Swiss-based Basel Committee on Banking Supervision proposed this tough step to prevent any widescale use of the cryptocurrency by big lenders.
While the committee’s proposal is being termed as conservative by some, crypto purists are calling it a constructive stance since it gives banks a go-ahead to hold bitcoin tokens and other alternative digital assets in their inventories.
Bitcoin, the largest cryptocurrency, reacted positively to this development and zoomed over US$ 38,000 apiece on Thursday (7:30 AM EST), June 10.
Globally, central banks have continued to send cautious directives to crypto investors, warning then of potential losses.
While bank’s exposure to anonymously run blockchain-listed digital currency is still limited, any frenzied and unsustainable growth could severely impact the global financial stability, the financial committee stated via a consultation paper. The committee also expressed worry on practices such as fraud, money laundering, cyberattacks, and terror funding surrounding the crypto industry.
The overall market cap of the crypto industry stands at approximately US$ 1.62 trillion, and banks holdings in this landscape is dwarfed by giant holdings of gold, securities, and other assets.
Bitcoin, A High-Risk Asset
The financial regulators have classified cryptocurrency as a high-risk asset.
But going by the crypto market’s initial reaction to this announcement, it seems proponents were possibly anticipating something worse.
This recommendation has widened the gateway for cryptocurrencies to enter the conventional financial system, which is likely to face tough regulations to protect account holders and digital asset investors.
Bitcoin: A high volatility Asset (Copyright © 2021 Kalkine Media)
Bear Crypto Market Ahead
The crypto market is already in a bull-trap and El Salvador’s Bitcoin law impact was also short-lived. JP Morgan’s strategists see a bearish signal for the world’s largest electronic coin, in their latest report. On top of that, the US lawmakers led by Senator Elizabeth Warren pitched to bring a law against Bitcoin operations because of its negative environmental impact and high electricity consumption.
Major economies, including China and the United States, have been indicating a stringent approach against private cryptocurrencies due to their high volatility and non-eco-friendly mining operations.
Central banks have been exploring sustainable plans to build their central bank digital currencies (CBDCs). Chinese and Japanese central banks have already initiated their CBDC pilot programs.
