Banks reduce exposure to Bitcoin and cryptocurrencies globally to 40%, says BCBS report

A report by the Basel Committee on Banking Supervision reveals that banks' exposure to Bitcoin and cryptocurrencies worldwide has dropped to 40%, citing market falls in 2022 and bankruptcies in the sector.

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The Basel Committee on Banking Supervision (BCBS) belonging to the Bank for International Settlements (BIS), reported that banks’ exposure to bitcoin (BTC) and cryptocurrencies globally has been reduced to 40%.

The report compiles information on banks’ exposures to cryptoassets and cryptocurrencies under custody, including information at the level of digital assets and individual activities.

Among the factors driving the reduction in cryptocurrency exposure under custody was a drop in the sample of banks participating in the BCBS exercise, from 182 banks to 126 banks.

Among the reasons that influenced the reduction was the fall experienced by cryptocurrency markets in 2022 and the bankruptcy of several companies in the sector (including FTX), the paper highlights.

Banks’ total exposure to cryptocurrencies, both directly and through derivatives, fell from 61.7% in 2021 to 15.4% in 2022. The data was collected by the BCBS between June 10, 2021 and June 30, 2022.

The BCBS also reported which cryptocurrencies and with which platforms banks had “prudential exposures” to. Bitcoin, is the cryptocurrency to which banks have the most exposure with 43%. The second place is awarded to the exchange to operations in Coinbase, as banks have shares and debt issued by this company with 29% and ether (ETH) 4%.

“Almost all (99%) of the underlying exposures to bitcoin or ether are due to products linked to these two cryptoassets, rather than to spot exposures,” the BCBS highlights.

The BIS has recommended that banks hold at least 1% of their reserves in BTC and other cryptocurrencies.

In their opinion, exposure to assets such as bitcoin, should be limited due to their volatility and also because they consider that the cryptoasset has the capacity to destabilize the financial system.

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