The consultation paper proposes dividing cryptocurrencies into Groups 1 and 2 Group 1 is a group of tokenized traditional assets, such as stocks issued on the blockchain and stable coin that meet classification requirements.
The requirements include a redemption risk and basis risk tests. The redemption risk test ensures that stable coins are redeemable at all times at the peg value. The basis risk test determines if the stable coin can be sold close to the peg value.
The stable coins and cryptocurrencies that do not meet these requirements fall within Group 2. These are considered to be riskier than the assets in Group 1 and include cryptocurrencies likeBitcoin andEthereum, as well as algorithmic stablecoins. The committee recommends a cap on exposure to Group 2 assets, with a cap of 1%.
The 1% cap means billions of dollars that can be held in the digital currency for large banks such as JP Morgan and Chase, which has nearly $264 billion in Tier 1 capital.
The previous consultation paper proposed that banks must ensure a sufficient amount of capital backed all criptocurrencies exposures. If a bank held $100 in criptocurrency, it had to make sure it had $100 as a reserve.
The committee has listened to the criticisms of its previous consultation paper. The paper suggests lighter rules for cryptocurrencies with equivalent liquid derivatives such as exchange-traded funds ETFs that recognize hedging possibilities.