Cryptos have gone viral in covid times as investment punts, possibly even as nest eggs, after central banks began to spout liquidity. Bitcoin zoomed more than sixfold in a span of a bit over six months to peak in mid-April at $63,000, before it slid to $37,000, as China tightened crypto rules and Elon Musk spoke about and pushed for a clean-up of its network, which has its own digital dynamics. This volatility, however, was not the sole reason for Thursday’s proposal by Basel’s panel on capital cushions to assign its heaviest risk weight to holdings of bitcoin (and a few others) in the safety calculations made by banks. The Basel Committee also flagged risks arising from the reputation of cryptos and their use for illegal purposes.
Cryptosceptics would see even this risk weight as too light for a new ‘asset’ that doesn’t qualify as one in the strict sense of something that yields a regular return. It is much like gold in that sense, valued for its scarcity and sell-on value. But this is no ‘barbarous relic’, as Keynes called bullion. It’s an e-success that might be a bubble but not a blip. No wonder many banks are globally being urged by clients to deal in cryptocurrencies. They had better be careful.
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