“Forbidding” restrictions on cryptoholdings could destroy innovation using distributed ledger technology, a coalition of eight traditional finance (TradFi) lobbying groups on international standards said in a paper released Tuesday.
The Basel Committee on Banking Supervision (a group of international regulators responsible for ensuring that banks expose enough capital to cover financial risks) is developing rules that could prove decisive for the adoption of cryptocurrencies by the TradFi sector. In June, the committee proposed that a lender’s exposure to “non-residual currencies” such as bitcoin and ether should never exceed 1% of the underlying capital. This hard cap is “prohibitive and needs to be calibrated,” TradFi officials, including the Global Financial Markets Association and the Institute of International Finance, said in response to a consultation that concluded on Friday. The Basel Committee proposals follow earlier consultations in June 2021, which met with a volley of criticism for discouraging the use of cryptocurrency, which is seen as the riskiest asset.
If this issue is not resolved, “it may be economically viable and rational to make the investments necessary to alleviate the needs of clients in activities related to crypto assets, which will likely lead to the transfer of activities in this space to the non-banking sector,” which is less regulated, it says. in the document.
Lobbying groups, which also include the Futures Industry Association, the International Swaps and Derivatives Association, the International Securities Lending Association, the Banking Policy Institute, the International Capital Markets Association and the Financial Services Forum, want the cap to be increased from 1% to 5% of capital for Tier 1 banks. Taking such measures could, for example, save Credit Swiss from an ever closer technical default. But, however, the Basel Committee has so far suggested simply pooling all the individual crypto risks to calculate if the limit has been breached. Countering such “innovations,” the industry argues that long and short positions can actually cancel each other out, isolating the lender from price volatility. For crypto assets that are considered more stable, such as tokenized securities and fiat-backed stablecoins, the Committee said it wants the additional capital raising to reflect the “various unforeseen risks” of infrastructure based on distributed ledger technology (DLT).
But the lobbying paper says that an additional 2.5% capital fee for infrastructure risk “could destroy the market.” Jurisdictions such as the European Union have already introduced laws to allow legal securities trading processes using blockchain, an experiment that should start early next year. And all of this perturbation comes amid warnings from the European Securities and Markets Authority (ESMA) issued on Tuesday that there is an increased risk of operational disruption given the growing adoption of cryptocurrencies by investors, which “de facto” means that future crypto upstarts could affect conventional financial markets. markets. The document offers the first analysis of how agency officials see risks in the crypto market as they prepare to take on new responsibilities under the European Union’s MiCA Crypto Asset Market Regulation.
ESMA officials are concerned about the repetition of many of the nasty and risky situations that occur in traditional financial markets, such as price manipulation and indirect selling, citing the experience of exchanges like Huobi and Bybit, which allow risky betting with over 100x leverage. . The study also looks at threats that are new to the crypto sector, such as manipulation of consensus mechanisms, large pseudonymous orders that distort prices, hacks, and network congestion.
“Due to their volatile growth cycles, and until appropriate regulations are enforced, cryptoassets entail numerous risks that may become relevant to financial stability in the future,” ESMA said.
Against this background, it would be reasonable to assume that a decision is needed on at least medium-term investment of fiat and cryptocurrency assets in projects that provide a stable income that obviously exceeds inflationary expectations and losses from possible repetition of mistakes. previous periods and recession. One of such investment projects, offering a simple and elegant solution for potential investors, is the ASTL project – an investment in the development of the real sector of both mining and staking of a portfolio of various cryptocurrencies, with a fairly high level of return – ROI up to 18% with payments depending on the size investment in stablecoin (USDT). More information about the proposals of the ASTL investment project can be found on the website.