Basel Committee Revisits Crypto Guidance: A More Favorable View for Banks?

Article Highlights

• The Basel Committee on Banking Supervision is preparing to revise its guidance on cryptocurrencies.
• This could lead to a more favorable view of cryptocurrencies by banks.
• The rapid growth of stablecoins and their new regulations are a major reason for the revision.
• Asset-backed stablecoins are considered less risky than other cryptocurrencies like Bitcoin.
• Some countries prefer early review of standards, while others prefer implementation first, then review.

Global banks may soon adopt a more optimistic stance toward cryptocurrencies as the Basel Committee on Banking Supervision (BCBS) gears up to revise its existing framework governing crypto asset exposure, according to a Bloomberg report released this Friday.

Citing sources familiar with the discussions, Bloomberg indicates that the Basel Committee's 2022 guidelines on how banks should treat crypto assets are slated for an update next year, aiming for a more permissive approach. This follows the initial issuance of these standards in 2022, which were largely interpreted by banks as a signal to avoid engaging with the crypto market altogether.

Bloomberg’s sources suggest that the Basel Committee recently convened to discuss the appropriateness of the original rules, which are yet to be fully implemented by the United States, the United Kingdom, and the European Union.

The impetus for these revised rules stems from the exponential growth of stablecoins, which have recently been regulated in the US through the GENIUS Act and are now approved for use in payment systems. Under the current Basel regulations, stablecoins issued on public blockchains are subject to the same capital charges as riskier assets, like Bitcoin (BTC) or Ether (ETH). This equivalence has faced criticism from market participants who argue that regulated, asset-backed stablecoins present significantly lower risks.

A Powerful Standard-Setting Body

The Basel Committee is a global entity responsible for setting international benchmarks for bank regulation, emphasizing capital adequacy, risk management, and supervision. Its regulations, such as Basel III, are designed to ensure the stability and resilience of banks worldwide, thereby mitigating the potential for global financial crises.

These developments follow remarks made by Chris Perkins, president of investment firm CoinFund, in mid-August, who noted that the capital requirements set by the Basel Committee for banks create a “chokepoint” that is intentionally designed to stifle the growth of the crypto industry. He stated:

“It’s a very nuanced way of suppressing activity by making it so expensive for the bank to do activities that they’re just like, ‘I can’t.’”

The report further suggests that certain countries, such as the US, are keen on proactively reviewing the standards before their implementation. Conversely, other countries are inclined to implement the existing standards first and then conduct a review at a later stage.

Notably, the EU’s Markets in Crypto-Assets (MiCA) Regulation already allows stablecoins to receive the same capital treatment as their underlying reserves, typically cash and cash equivalents.