On June 10, 2021, the Basel Committee on Banking Supervision, which sets minimum standards for international banks, published a public consultation paper on how banks will be required to allocate capital on cryptocurrency positions, loans, and other exposures. The paper is notable as the proposed treatment of crypto is very punitive on what is categorized as Group 2 cryptos, which would effectively include all cryptocurrencies that are not stablecoins. While such treatment of crypto would be quite conservative, we are not surprised by this as the Committee has been hinting for some time that this would be the likely outcome.

The proposal provides substantially more details on stablecoins than we have seen before and the rules could pose real challenges for banks wishing to participate in crypto activities. As part of the proposal, cryptocurrencies will be divided into Group 1(a) - Tokenized assets, Group 1(b) - Crypto with stabilization mechanisms, and Group 2 - All other crypto. Group 1(a) assets will be treated as a look through to the underlying assets (ex: a tokenized loan will carry the same risk weighting as the equivalent loan), with add-ons for operational risk, such as security interests and legal challenges.

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Greg Bunn
Chief Strategy Officer

Greg Bunn is the Chief Strategy Officer at CrossTower. Greg is an expert in structuring, financing, and building businesses with over 20 years of experience. Most recently, Greg served as Global Head of Counterparty Strategy & Central Funding at Citadel. Previously, Greg was Global Co-Head of Prime Finance at Deutsche Bank running the securities financing businesses across prime brokerage, delta-one derivatives, securities lending, listed derivatives, and clearing. Greg is a Chartered Accountant, CFA Charterholder and holds a BS (Honors) from University of South Africa.

About the Author

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Martin Gaspar
Research Analyst

Martin is a research analyst at CrossTower. Martin has several years of experience in conducting fundamental research and cryptocurrency analysis. Prior to joining CrossTower, Martin was a fixed income research analyst at Wells Fargo Securities, where he helped support traders, salespeople, and buy-side clients through his actionable investment recommendations. He has a passion for crypto and has followed the space extensively since 2012. Martin holds a BA from Colorado College, where he graduated with Distinction in Economics.