Introduction

On March 29th, Pablo Hern á ndez de Cos, Chairman of the Basel Committee on Banking Supervision and Governor of the Central Bank of Spain, stated at an event hosted by the Bank for International Settlements that the new capital rules that require banks to treat unsecured encrypted assets such as Bitcoin (BTC) as the riskiest assets would take effect in January 2025. If these rules ultimately have a ripple effect on finance, they may be amended.

Chairman of the Basel Committee on Banking Supervision: If there is a chain reaction to finance, it is possible to modify the encryption banking rules

On March 29th, 2021, Pablo Hernández de Cos, the Chairman of the Basel Committee on Banking Supervision, announced that the new capital rules, which require banks to treat unsecured encrypted assets like Bitcoin as the riskiest assets, will take effect on January 1st, 2025. This announcement has led to some questions about the impact of this new ruling on the world of finance.
# Table of Contents
1. Understanding the new capital rules for banks
2. Bitcoin’s classification
3. What does this mean for the cryptocurrency industry?
4. The possible effects on international finance
5. Comparing Bitcoin to other assets
6. The advantages and disadvantages of this new ruling
7. Possible amendments to the ruling
8. Conclusion
9. FAQs

Understanding the new capital rules for banks

The Basel Committee on Banking Supervision is a committee of banking supervisors from around the world that aims to strengthen bank supervision and regulation globally. The committee has released a new set of rules that will require banks to increase their capital holdings for riskier assets. Under these new rules, banks must hold additional capital against their exposures to assets including unsecured cryptocurrencies like Bitcoin. This means that banks will need to have a higher amount of capital to protect themselves from potential losses.

Bitcoin’s classification

Bitcoin has been classified as the riskiest asset for banks under the new rules because it is a highly volatile asset that is not backed by any underlying asset or government. This means that the value of Bitcoin can fluctuate significantly in a short period of time, making it highly unpredictable and risky for banks.

What does this mean for the cryptocurrency industry?

The new ruling may have a significant impact on the cryptocurrency industry. If banks are required to hold additional capital against their exposure to Bitcoin, they may become less likely to hold or invest in cryptocurrencies. This could lead to reduced demand for Bitcoin and other cryptocurrencies, which could result in a price drop.

The possible effects on international finance

The new capital rules could also have ripple effects on the world of finance. If banks reduce their holdings of Bitcoin and other cryptocurrencies, it could limit the availability of capital in the cryptocurrency market. This could impact the overall liquidity of cryptocurrencies and limit the growth of the industry.

Comparing Bitcoin to other assets

It is important to note that Bitcoin is not the only asset being classified as risky by the new rules. Other risky assets include subordinated debt, private equity, and securitized products. The rules are designed to protect banks from any asset that is highly unpredictable, volatile, and not backed by any underlying asset or government.

The advantages and disadvantages of this new ruling

There are both advantages and disadvantages to the new ruling. On the one hand, these new capital rules will help ensure that banks are better equipped to handle risks associated with unsecured assets such as cryptocurrencies. This will promote the stability of the banking system and reduce the potential for financial crises.
On the other hand, the new rules may limit the growth potential of cryptocurrencies and the overall cryptocurrency market. They may also limit the ability of startups and emerging businesses to raise capital from banks, which could stifle innovation and growth.

Possible amendments to the ruling

It is possible that the new capital rules may be amended in the future. As the cryptocurrency market evolves and matures, it is likely that regulators will revisit the rules to ensure they remain effective and relevant. Amendments may be made to reduce the impact on the cryptocurrency industry while still ensuring that banks are adequately protected from potential losses.

Conclusion

The new capital rules require banks to hold additional capital against their exposure to risky assets, including unsecured cryptocurrencies like Bitcoin. While these rules may help ensure the stability of the banking system, they may also have a negative impact on the cryptocurrency industry and limit its growth potential. It is possible that the rules may be amended in the future to balance the needs of the banking system with the needs of the emerging cryptocurrency industry.

FAQs

1. Will the new capital rules eliminate the risk of bank failures?
No, the rules are designed to reduce the risk of bank failures, but not eliminate them entirely.
2. Are all cryptocurrencies considered risky under the new rules?
No, only unsecured cryptocurrencies like Bitcoin are considered risky under the new rules.
3. Will the new rules limit the growth potential of the cryptocurrency market?
It is possible that they may limit the growth potential of the cryptocurrency market, as banks may become less likely to invest in or hold cryptocurrencies.