The committee proposed a risk weighting of 1,250% for bitcoin
Global regulators are calling for the toughest possible capital rules for crypto assets, even more so than more traditional assets such as stocks.
Proposals by the influential Basil Committee on Banking Supervision have suggested that bitcoin should be subjected to a new “conservative prudential treatment”.
The committee’s findings were part of a report released on Thursday as policy officials across the world put together plans to regulate the volatile yet rapidly growing market.
While banks’ exposure to the industry is still limited, the Basel Committee suggested that “the growth of crypto assets and related services has the potential to raise financial stability concerns and increase risks faced by banks”.
The report cited a number of risks including market and credit risk, fraud, hacking, money laundering and terrorist financing risk.
Bitcoin surpassed $38,000 on Thursday, making further ground on Wednesday’s rally, after the digital currency became legal tender in El Salvador.
The committee proposed a risk weighting of 1,250% for bitcoin, but not for stable coins which are fully backed by reserves.
“A $100 exposure would give rise to risk-weighted assets of $1250, which when multiplied by the minimum capital requirement of 8% results in a minimum capital requirement of $100 (ie the same value of the original exposure, as 12.5 is reciprocal of 0.08),” the proposal said.
Although bitcoin has been ruled as a risky asset, the reaction by the market suggests it was expecting an even stricter ruling.
“As cryptocurrencies begin to make their way into the traditional financial ecosystem, it is only normal to expect various regulatory bodies to begin to set and then also try to coordinate regulatory initiatives to protect savers and investors,” Denis Vinokourov, head of research at Synergia Capital told CoinDesk.
“Risk is over-regulation, but equally lack of regulation will also prevent further adoption en masse. Basel’s proposal to split assets into groups makes logical sense given the different volatility and risk parameters,” Vinokourov added.