• The European Parliament has approved a bill to implement the final stage of the post-financial crisis global bank capital rules (Basel-III) starting in January 2025.
• This bill stipulates that volatile cryptocurrencies like Bitcoin will be considered the riskiest investment.
• Banks must hold more than one euro of free capital for every euro of cryptocurrencies, in order to prevent instability in the crypto world from spilling over into the financial system.
The European Union has been pushing for clear regulations for the Bitcoin and crypto industry for some time. After the final vote on the European Union’s draft legislation to regulate cryptocurrencies, the Markets in Crypto-Assets Regulation (MiCA), was postponed until April 2023 due to technical difficulties, the European Parliament recently approved new banking regulations.
On Tuesday, the Economic Affairs Committee of the European Parliament approved a bill to implement the final stage of the post-financial crisis global bank capital rules (Basel-III) starting in January 2025. This bill stipulates that volatile cryptocurrencies like Bitcoin will be considered the riskiest investment. It is following the Bank of International Settlement (BIS), which essentially divides cryptos into two distinct groups. Group 1 represents tokenized assets and stablecoins with approved stabilization mechanisms, while it is questionable whether Tether or USDC meets the requirements. Group 2 includes stablecoins without BIS-approved stabilization mechanisms and volatile cryptocurrencies.
This group classification entails that Bitcoin, Ethereum, and other cryptos require banks to apply a “risk weight” of 1,250%. This means that European banks must hold more than one euro of free capital for every euro of cryptocurrencies. According to Markus Ferber, a German member of the European People’s Party in the EU Parliament, this effort is designed to “prevent instability in the crypto world from spilling over into the financial system.”
The new regulations come into effect in January 2025, and will have a significant impact on the cryptocurrency industry. Banks will need to hold much more capital to invest in cryptocurrencies, which could make it more difficult for them to enter the market. It also could mean fewer options for investors, as banks may be less willing to take on the risk associated with volatile cryptocurrencies.
The European Union is taking a strong stance on regulating the cryptocurrency industry, and it remains to be seen how the new regulations will be enforced. However, it is clear that the EU is taking steps to ensure the stability of the industry, and to protect investors from potential instability.