A top global banking regulator has proposed strict rules for cryptos that could make them costly for banks, and has put bitcoin (BTC-USD) in its highest risk category.
The Basel Committee on Banking Supervision believes banks should set aside enough capital to cover losses on any bitcoin holdings in full and has issued a public consultation on proposals for the treatment of banks' cryptoasset exposures.
One proposal is to attach a 1,250% risk to a bank’s exposure to bitcoins and certain other cryptos.
“In practice, that means a bank may need to hold a dollar in capital for each dollar worth of bitcoin, based on an 8% minimum capital requirement,” Bloomberg explained.
“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 commmittee has said.
These risks include operational ones such as fraud and cyber risks, as well as money laundering and terrorist financing.
The committee divided cryptoassets into two groups, those that fulfil a set of conditions and are eligible for treatment under the existing Basel Framework, and those like bitcoin and ethereum (ETH-USD) which pose "additional and higher" risks and could be subject to “a new conservative” treatment.
The committee is looking for comments on its proposals, which it said should be submitted by 10 September.
Bitcoin prices are recovering from an earlier sell-off, after El Salvador announced it would accept the crypto as legal tender.
Bitcoin was up roughly 8% on Thursday afternoon, trading at $36,935 (£26,237), still a distance away from its all-time high of more than $63,000.
Cryptos are not new to regulatory action. Their recent volatility has been linked to Chinese social media site Weibo suspending "key opinion leaders", reigniting fears of further crack down in the country.
Earlier, Chinese vice-premier Liu Hu had said China would "severely crack down on illegal securities activities and severely punish illegal financial activities."
Meanwhile the Internal Revenue Service in the US has said it needs more authority from Congress to regulate the cryptocurrency industry and collect information on transfers valued at over $10,000 that mostly go unreported.
And the UK's Financial Conduct Authority has warned that if consumers invest in cryptoassets, "they should be prepared to lose all their money."
As for banks, some are distancing themselves from cryptos. NatWest (NWG.L) said it will not engage with business customers who accept payment in bitcoin or other cryptocurrencies.
And HSBC (HSBA.L) said it will not allow customers to buy shares in companies associated with cryptocurrencies, such as Coinbase (COIN) or MicroStrategy (MSTR). Its CEO had also said the bank does not plan to launch a cryptocurrency trading desk.
Goldman Sachs (GS), on the other hand, has recently relaunched its cryptocurrency trading desk.
Watch: What are the risks of investing in cryptocurrency?