Basel Committee's Capital Rules Impact Crypto Industry Growth

According to Cointelegraph, the Basel Committee on Banking Supervision (BCBS) has implemented capital requirements that are perceived as a strategic barrier to the expansion of the cryptocurrency sector. Chris Perkins, president of investment firm CoinFund, argues that these banking standards create a 'chokepoint' by increasing reserve requirements for banks holding crypto assets, thereby reducing their return on equity (ROE). This makes crypto-related activities financially unviable for banks, effectively stifling industry growth. Perkins explains that the regulations indirectly suppress activity by making it prohibitively expensive for banks to engage in crypto ventures, leading them to prioritize investments in high ROE businesses instead. In April, Perkins voiced concerns over the Bank for International Settlements' (BIS) proposals to impose know-your-customer (KYC) requirements and other traditional banking regulations on decentralized finance (DeFi) protocols and stablecoins. He contends that these measures contradict the fundamental principles of permissionless networks. Perkins highlights the systemic risk posed by the disparity between decentralized networks, which operate continuously and can shift liquidity in real-time, and traditional financial systems that remain closed during nights and weekends, resisting technological advancements. The BIS, serving as a central bank for sovereign central banks and organizing BCBS conferences, released a report in April warning that cryptocurrencies could destabilize the financial system. The report's authors also suggested that the growth of the crypto market could widen the wealth gap, advocating for stricter government regulations. In June, the BIS published a follow-up report titled 'Stablecoin Growth: Policy Challenges and Approaches,' asserting that stablecoins fail as a form of money and could pose systemic risks to the financial system. The report noted the increasing cross-border use of stablecoins and their growing market capitalization, which could potentially impact the traditional financial system. The BIS has consistently promoted the adoption of central bank digital currencies (CBDCs) and other centralized digital technologies as alternatives to privately-issued and decentralized cryptocurrencies.