Bank For International Settlements Allows Banks To Keep 1% Reserves In Bitcoin

June 30, 2022 10:11 pm

The Bank for International Settlements (BIS) just announced that it will allow all of its banks to store 1% of its reserves in Bitcoin.

This marks a new milestone for the digital asset despite the recent market crash where the price of BTC declined to around $20k.

Typically, assets that a bank uses as part of its reserves in considered an asset class that has relatively low risk, so this could be an indication on how confident the banks are in Bitcoin as an alternative asset.

There are exposure limits to it though, but this move by the BIS could potentially have many other international banks follow suit in the future.

Finbold reports:

Indeed, BIS’s Basel Committee on Banking Supervision (BCBS) has made the proposal for limiting the banks’ total exposures to “Group 2 cryptossets to 1% of Tier 1 capital” in its consultative document titled “Second consultation on the prudential treatment of crypto assets,” published on June 30.

Specifically, Group 2 refers to the assets that do not meet classification conditions and includes specific tokenized traditional assets and stable coins, as well as unbacked crypto assets.

As opposed to Group 2, Group 1 includes tokenized traditional assets and stablec oins that meet classification conditions.
According to the document:

“Banks’ exposures to Group 2 crypto assets will be subject to an exposure limit. Banks must apply the exposure limit to their aggregate exposures to Group 2 crypto assets, including both direct holdings (cash and derivatives) and indirect holding (ie those via investment funds, ETF/ETN, special purpose vehicles).”

Even with this exposure limit, if many large international banks decide to have 1% of reserves in BTC, this would end up with a very large amount of capital entering the market.

After all, 1% of assets of a large bank like JP Morgan would essentially amount to billions of dollars and this would be an extreme vote of confidence in the role that crypto would play in society.

What is also impressive about this is the timing as this comes during the recent bear market and after the recent UST stable coin implosion which attracted a lot of regulator attention.

As a result, crypto investors are speculating that the current market condition could be a huge investment opportunity that the institutions are now taking advantage of.

CoinDesk concludes:

The proposal implies the 1% cap would apply to unbacked cryptocurrencies like bitcoin (BTC), and for cryptocurrencies like algorithmic stablecoins which are backed by other cryptocurrencies and stabilized by an algorithm.

In May, an $18 billion algorithmic stablecoin terraUSD collapsed, prompting regulators to fast-track oversight.

The cap also applies to total holdings of crypto assets classified as high risk. For instance, if a lender has 0.6% in algorithmic stablecoins and 0.5% in bitcoin, it has breached the 1% limit.

The committee is seeking comments on the plans by the end of September, and says it will monitor the fast-moving and volatile market in the meantime.

The community is now wondering who the next bank is that will follow the steps of the BIS and add BTC to their reserves.

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