In 2025, the European Union‘s (EU) new regulations will demand that financial institutions abide by more rigorous capital requirements when handling cryptocurrencies. What’s more, these rules stipulate the strictest possible risk rating for such digital currencies should be assigned to them.
All Cryptocurrencies Will Be Valued In Different Ways
Depending on the cryptocurrencies being evaluated, the capital requirements stipulated by the European Union’s Basel Committee may vary. Popular cryptos like Bitcoin (BTC) and Ethereum (ETH) are classified as Group 2 assets, per their regulations. The committee further divides this group into two subsections: Group A consists of cryptocurrencies held through ETFs or other derivatives, which can be traded on regulated public markets, while Group B is where these types of trades do not occur.
Group 2B assets are posed with a suggested property weight of 1.250%, yet the requirements for Group 2A are significantly lower. Moreover, other cryptocurrencies such as stocks tokenized versions, some types of stablecoins that don’t rely on algorithms to retain their cost, and potential Central Bank Digital Currencies (CBDCs) would fit into lower capital demands and come under Group 1.
Regulations Will Also Determine How Many Cryptocurrency Assets Banks Can Hold
In addition, the new regulations will require banks to adhere to strict limitations regarding their holdings of Group 2 cryptocurrencies. A bank’s total investment must not surpass 2% of its capital and usually be below 1%, according to these proposed rules. Consequently, this stringent limitation should ensure that a bank’s exposure is best managed and risks are minimized for investors in digital currencies.
In response to the sharp decline in cryptocurrency markets, the European Union Commission has declared that it is necessary to reduce risks associated with this type of application. Stressing how existing prudential regulations are inadequate for managing the risk related to digital assets, they highlighted their urgency in regulating cryptocurrencies.
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