The Basel Committee on Banking Supervision is the "central bank for central banks," so its statements about cryptoassets are seen as particularly significant.

Banks must have enough capital to guard against risks posed by their exposures to cryptoassets such as bitcoin, as these entities continue to flourish, the Basel-based body that sets international standards said yesterday.

With bitcoin and other digital assets going increasingly “mainstream,” central banks and other policymakers are working out how to oversee them. Bitcoin prices have been highly volatile. There is a patchwork of different regulations around the world, from tight restrictions to relatively liberal regimes.

The Basel Committee on Banking Supervision yesterday began a  public consultation on preliminary proposals over how banks' cryptoasset exposures should be managed.

Bitcoin hit highs above $38,000 after the Basel statement hit the newswires. Bitcoin has been volatile, reaching $64,895 in mid-April this year, before slumping to around $36,834 on Thursday, but rebounded. In April 2020, it was just over $6,000.

Central bank digital currencies are not included in the Basel proposals.

“While banks' exposures to cryptoassets are currently limited, the continued growth and innovation in cryptoassets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment,” the organisation said.

The Committee, composed of regulators in major financial centres, proposed a twin approach to capital requirements for cryptoassets held by banks. Under the Basel system, banks must set aside capital based on the type of risks they run: the bigger the risk, the larger the capital required. A concern is that digital assets are so volatile that banks could be hit.

El Salvador has become the world’s first country to adopt bitcoin as legal tender, as media reports said (Reuters, other). The international picture remains uneven, however. In China, for example, the country is taking a more restrictive stance. China’s Qinghai province this week said it was banning virtual currency mining operations, for example.

The Swiss body said that although bank exposures to cryptoassets are limited, growth could increase risks to global financial stability without commensurate capital requirements. The Committee said it took an agnostic view on cryptos – neither being for or against a specific technology.

Bitcoin and other cryptocurrencies are currently worth around $1.6 trillion (Reuters), small compared with bank holdings of loans, derivatives and other major assets.