The Central Banks is buying Bitcoin? What does it mean for Crypto?

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So basically, the Bank for International Settlements (BIS) has come up with some rules that will allow central banks (like the Federal Reserve in the US) to hold and manage cryptocurrencies starting in 2025. This is a big deal because until now, the BIS and most central banks have been against cryptocurrencies. The BIS released a document with these rules, which are called "Prudential treatment of crypto asset exposures." It says that some institutions asked for these rules to be made in June 2022, so the BIS came up with them.


The document has six main parts: Group 1 cryptocurrencies (which are the ones that central banks can hold the private keys for and confirm ownership of), Group 2 cryptocurrencies (which are the ones that don't meet the criteria for Group 1), infrastructure risk (which is the risk of the technical stuff used to hold and manage the cryptocurrencies), redemption risk (which is the risk of not being able to sell the cryptocurrencies), Group 2 exposure limits (which is the most that a central bank can be exposed to Group 2 cryptocurrencies), and "other elements" (which are things like cybersecurity and governance). The document says that these rules will be reviewed and updated as needed. This could mean that central banks and other financial institutions are starting to accept and use cryptocurrencies more.

In 2025, the Bank for International Settlements (BIS) will start keeping track of how people handle cryptocurrencies. They'll pay attention to five main things: 1) how well people keep track of their crypto, 2) how people use cryptocurrencies without permission from the BIS, 3) how people use stablecoins as collateral, 4) what makes a cryptocurrency big or small, and 5) how much of their money central banks use to buy cryptocurrencies. The BIS will also try to make a rule about which stablecoins are safe to use. They might also let people use stablecoins as collateral for loans one day. The BIS will decide which cryptocurrencies are big or small based on certain rules. They'll also try to make sure that central banks don't use more than 1% of their money to buy cryptocurrencies. They might change this rule later on if they think it's okay for central banks to use more of their money to buy crypto.

What does it mean for Crypto?

At first, people thought this was a good thing for the crypto market, but when you look closer, it might actually mean the end of crypto. The BIS doesn't like crypto very much, especially stablecoins, because they can compete with central bank digital currencies (CBDCs). The BIS also thinks that crypto causes financial problems. It's believed that the BIS made these rules because some central banks aren't able to create and keep track of a secure CBDC system. Instead, these central banks might issue their own stablecoins, which are like digital versions of their normal money. While this could mean that smart contract cryptocurrencies get used more, it could also mean that central banks have a say in how these cryptos work and start collecting a lot of them. This could lead to centralization and the end of true crypto.

Reference: Central Banks Buying Bitcoin