Swiss Regulator: Cryptoasset Risk Coverage to Be Estimated At 800% Of Market Value

  • Switzerland's financial regulator, FINMA, has instructed local financial institutions to estimate risk coverage for cryptoassets at 800% of their market value.
  • FINMA considers cryptoassets to be a highly volatile and risky asset class.

Switzerland’s financial regulator, the Financial Market Supervisory Authority (FINMA), has  reportedly recommended that cryptoassets should be “assigned a flat risk weight of 800% to cover market and credit risks.”

FINMA also advised local banks and other financial institutions to estimate risk coverage for all digital assets at 800% - “regardless of whether the positions are held in the banking or trading book.”

The high risk coverage for cryptoassets indicates that FINMA considers them to be highly volatile, and classifies their trading “at the same level as hedge fund activity.”

"Increasing Number Of Enquiries" From Cryptoasset Holders

Although the Swiss financial regulator acknowledges that cryptocurrency prices have stabilized in the last few months - with bitcoin’s (BTC) volatility index being at its lowest since December 2016, it still thinks that the “spectre of volatility stills hangs over the asset class.”

According to a confidential letter FINMA recently sent to EXPERTSuisse (an association for Switzerland’s accountants and trustees), the Swiss regulator has “received an increasing number of enquiries from banks and securities dealers holding positions in cryptoassets.”

In response, FINMA said that anyone who owns cryptoassets is “subject to capital adequacy requirements, risk distribution regulations and regulations for the calculation of short-term liquidity ratios.”

Must "Assume Value Of $50,000" Per Bitcoin

Bitcoin (BTC) is currently trading at around $6,400 according to data from CryptoCompare, however, a financial institution has to “assume a value of around $50,000” per bitcoin when determining the “risk-weighted” value of the cryptocurrency.

Because of this, banks and other financial service organizations must “put aside a larger chunk of capital to cover potential losses of cryptocurrency positions than most other assets,” local news outlet, SwissInfo.ch explained.

FINMA has also instructed Swiss financial institutions to limit their digital currency trading activity to 4% of their total capital. When this limit has been reached, the institutions must report to the nation’s regulatory authorities.

Positive Feedback From Switzerland Bitcoin Association

Notably, these guidelines are only applicable to cryptoassets that institutions are holding on their balance sheets, and do not apply to customer funds held separately.

Responding to the new crypto regulatory requirements, the Bitcoin Switzerland Association (an “active community” of crypto enthusiasts that aim to increase awareness of digital assets), said: 

It’s encouraging to see banks no longer turning down the increasing number of client requests for crypto services but asking for guidance and providing their input along the way. This is the Swiss financial centre’s first step towards moving into the next decade where assets are no longer held in a single, central custody but instead are held on the blockchain.

Bitcoin Switzerland Association

 

Burn Satoshi's Bitcoin, Suggests Paxful CEO in Thought Experiment

John Moore
  • Paxful CEO Ray Youssef proposes 'burning' the stash of Bitcoin alleged to belong to Satoshi Nakamoto
  • Bitcoin creator said to hold up to 980,000BTC in dormant wallets, theoretically worth US$10 billion
  • Without complete consensus on the move,  burning the coins would cause another Bitcoin fork

One member of the global cryptocurrency community has come up with what can best be described as a scorched earth policy for settling the debate over who is Satoshi Nakamoto once and for all. 

With the spotlights of Bitcoin watchers firmly on the latest questionable claim to be the creator of cryptocurrency as we know it, Ray Youssef - CEO and co-founder of crypto marketplace and wallet service, Paxful - in a now-deleted Tweet - took to Twitter to propose a Bitcoin soft fork that would 'burn' the BTC its  pseudonymous developer is thought to hold in wallets that have never been active.

His suggestion was ignored by a group of crypto-luminaries who he tagged for support, and apparently rounded on by commenters. 

Blockchain analysis undertaken in 2013 by Security Researcher and Bitcoin Blogger, Sergio Demain Lerner , alleged that Nakamoto may have amassed something like 980,000 bitcoin as a lone miner in the early days of its existence. When the BitMEX exchange team revisited Lerner's work a year ago, they reduced this estimate to 700,000 - but didn't rule out the possibility that the figure could be much higher.

Thus, the cryptocurrency the creator fo bitcoin likely accumulated between Jan and August 2009 (or late-Jan 2010, depending on whose opinion you listen to) could, theoretically, be worth something in the region of $10 billion at the current market rate.

A more realistic assessment of their value, however, centers on the idea  that - as they are sitting in the most closely watched wallets on the crypto scene - any attempt to move or sell them would cause massive upheaval in the global cryptocurrency markets, crash the BTC price and gut their value before a significant amount could even make it to a hot wallet somewhere. 

This scenario has been a sword of Damocles threatening Bitcoin since the Satoshi's Stash theories first appeared amid early interest in the concept, explaining the appeal of simply removing control of the coins from their owner - especially to someone with a vested interest in Bitcoin's value. However, Youssef's suggestion that such a measure would 'smoke out' Nakamoto's real life persona, was obviously considered to be ethically outrageous by some and a logistical nightmare by almost everyone. 

It's not that it isn't technically possible. It is. However, unless it had the consensus of the entire Bitcoin network (saying it wouldn't is a pretty safe bet), the fork would create two blockchains and a 'Schroedinger's Nakamoto' - where Satoshi was very rich on one, but not on the other. 

Let it not be forgotten that a similar schism led to a fork in the Ethereum blockchain following The DAO hack a few years back, a split that we have to thank for the existence of Ethereum Classic, which stuck with the pre-DAO blockchain. Let it also not be forgotten that recent Bitcoin forks have not worked out so well for most of the parties involved. Let it also not be forgotten that Nakamoto is considered with almost deity like reverence by some crypto-evangelists. All in all, it seems Youssef is now regretting making the suggestion

So, while Youssef's suggestion could well have been a way to get the real Satoshi Nakamoto to please stand up, it would likely have done much more damage than good.