The Federal Reserve published a report on digital currencies. The Commodity Futures Trading Commission (CFTC) and the Federal Deposit Insurance Corporation (FDIC) have issued similar reports on digital currency. The reports contain recommendations for digital currency companies, including background information on bank regulation and Bitcoin holdings.
Bitcoin has been the center of headlines lately, as both the value of the digital currency and the number of businesses using it. A reason for the rise is that banks and governments are starting to consider virtual currency as a legitimate form of payment. It gives rise to speculation that its value could eventually soar, much like gold and other commodities.
Bitcoin users have been waiting on regulatory authorities to approve BTC as an asset class. The latest to take up the cause was the Financial Conduct Authority (FCA) in the U.K. They proposed the most stringent regulation for the currency Read more about cryptocurrency regulation.
Global banking regulators will need to ensure sufficient capital to cover potential bitcoin losses. The Basel Committee on Banking Supervision is composed of supervisors from the world’s major financial centers. Bank regulators proposed a strict new rule for BTC. It might be a conservative or cautious step to prevent the widespread use of cryptocurrencies by large lenders.
The Basel Committee on Banking Supervision is composed of regulators of the world’s financial centers. The committee has proposed two-part guidance on capital requirements for cryptocurrencies held by banks. It will be the first tailored rule for this emerging sector.
Bitcoin is the Most Popular Cryptocurrency in the Market
El Salvador is the first country in the world to accept BTC as legal tender. It is a groundbreaking decision, even though central banks around the world are warning bitcoin investors about the potential risks.
In recent weeks, major economies, including the United States and China, have signaled the need for better measures to be made. In addition, they have developed plans to create their own Central Bank cryptocurrencies.
The Switzerland-based Basel Committee on Banking Supervision has noted that the banking risks of digital currencies are limited. It might continue to grow and increase the risk of global financial stability from fraud. Cyber-attacks, terrorist financing, and money laundering could affect the market if there are no capital requirements.
Bank Regulation and Bitcoin Holdings for Capital Protection
Bitcoin and other cryptocurrencies are worth $1.6 trillion worldwide. It is still relatively small to bank’s derivatives, loans, and other significant assets. The Basel requirements require banks to set risk weights for the various assets on their balance sheets. In addition to the rules for total capital.
Basel also has two large groups dedicated to cryptocurrency. The first group is certain stable currencies and traditional token-based assets; These are regulations by existing rules and treated as loans, bonds, stocks, deposits, or commodities. The weighting factor is 0% for tokenized government bonds and 1250% of the total value asset finance. The value of Staplecoins and Group 1 crypto-currencies is linking to a traditional Bitcoin.
Since cryptocurrencies are based on rapidly evolving technology such as blockchain, Basel says this could lead to an increased likelihood of operational risks requiring additional capital provisions for all types. Under the proposed Basel rules, a risk weight of nearly 1 250% would mean that banks would have to hold capital equal to the value of their exposure to BTC and other Group 2 cryptocurrencies.
The value of bitcoin rose about 1.5% to $37,962 following the Basel Committee announcement. It appears to be a steady upward trend. Recently a rule was released by the UK’s Financial Conduct Authority (FCA) for anyone who holds bitcoin or other cryptocurrencies. They will now have to keep coins with a capital cushion of at least 3.5%.
People have expressed concerns about the negative impact on the price of digital currency. Others think it is necessary to ensure crypto-currency, so there will be no money laundering and other illegal activities.
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