- Efforts have been made to ease restrictions on cryptocurrency holdings as part of broader banking reforms.
- Lawmakers have sought to prevent potential cryptocurrency turmoil from impacting the commercial banking system.
- Proposed danger weight adjustments for cryptoย stablecoins and tokenized assets have aimed for a balanced regulatory approach.
The European Commission aims toย support commercial lendersโ inclusion of cryptoย stablecoins and tokenized assets, countering efforts by lawmakers to discourage cryptocurrency holdings as part of broader banking reforms.ย
EU Seeks to Prevent Cryptocurrency Turmoil from Affecting Banks
A leaked document has revealed the Commissionโs intent to moderate the European Parliamentโs strict stance, which wasย known for banks to hold one euro of financialย resources for every euro of crypto.ย
Lawmakers from the European Union (EU) seek to prevent cryptocurrency turmoil from affecting commercial banking by imposing a 1,250 percent danger weight on digital assets, creating a maximum financialย resources requirement for lenders.
The Commissionโs proposition, following an April 18 meeting between negotiators, suggests reducing the danger weight to 250 percent for cryptoย stablecoins tied to non-fiat assets like gold. Tokenized assets and cryptoย stablecoins backed by fiat currencies would be treated similarly unless additional credit or market dangers exist.ย
This aligns with theย following Markets in Cryptocurrency Assets regulation (MiCA), effective July 2024, which regulates cryptoย stablecoin issuers and mandates appropriate reserves.
EU Commission Moves Toward Crypto- Investment Regulations
The leaked document isย warning of increased dangers to financial stability if a regulatory framework isnโt established to address dangers from exposure to crypto-assets. Banks could face amplified dangers owingย to the transmission channels betwixt the crypto- investment and financial markets.ย
The proposition requires supervisors to secure banks properly manage dangers associated with holding digitalย currencies, such as cybersecurity, money laundering, and valuation issues.
Bitcoinย (BTC) and Ethereumย (ETH) would still carry the maximum danger weight of 1,250%. This cautious approach has raised concerns in the traditional finance sector.ย
The proposals anticipate detailed cryptocurrency standards from the Basel Committee on Banking Supervision. The Commission intendsย to finalize a more comprehensive strategy after 2023, once worldwide standards are in place.ย
The proposals must be reconciled with the EU member statesโ text to become law, typically through closed-door negotiations facilitated by the Commission.
The other side
- Easing access to cryptoย stablecoins and tokenized assets for commercial lenders may expose the banking system to increased dangers associated with cryptocurrenciesโ volatile and relatively unregulated nature.
- Reducing the danger weight for cryptoย stablecoins tied to non-fiat assets canย potentially undermine the financial systemโs stability, as the value of such assets can be subject to wholeย lotย of fluctuations.
- Traditional finance sector representatives caution that the conservative regulatory approach towards digitalย currencies could impede innovation and hinder theย expansion of crypto-related business activities in the short term.
Why This Matters
The leaked proposition, if implemented, could expandย the accessibility and acceptance of digital assets within the traditional banking system, fostering increased integration and potentially fueling further growth and adoption of cryptocurrencies.
To learn more about how Tetherย (USDT) strengthens its cryptoย stablecoin reserves through Bitcoin investment, read here:
Tetherย (USDT) Strengthens Cryptoย Stablecoin Reserves with Bitcoin Investment
To stay updated on theย pastย few decline in USDT usage, reaching a four-year low regardlessย of recording high marketย cap, read here:
USDT Usage Plummets to 4-Year Low Regardlessย of Record Market Cap
