115
Basel III is a big deal for gold-bugs, a big deal for central banks, a big deal for macroeconomics and potentially a big deal for crypto, but odds are you probably haven't heard of it. Let's take a quick look together, I'll do my best to give you the facts while trying to keep things short and simple.
Background
The 2008 GFC did a lot of damage to the global banking system. Many banks had a lot of risky assets on their balance sheets that went bad, which led to collapses or taxpayer-funded bailouts. An example of a high-risk asset might be a High Volatility Commercial Real Estate loan (HVCRE), where the borrower only pays a low initial sum (typically less than 20% of the total loan value).
As a result the international banking supervisory body, the Basel Committee on Banking Supervision (BCBS), established new recommendations for banks worldwide to increase their minimum capital requirements, decrease their debts and hold more and higher quality assets as protection from 2008-eque failures, which hurt everyone. These new recommendations are generally referred to as Basel III. To note, while the Basel recommendations are not compulsory, the BCBS features members from virtually every advanced economy in the world who negotiate recommended regulations in an attempt to avoid large or systematic economic failures, since these hurt everyone.
Physical Gold and 'Paper' Gold
A notable recommendation of Basel III was that physical gold bullion has been re-classified as a more important asset when calculating whether a bank meets its minimum capital requirements. Previously, a lot of banks chose to hold 'unallocated' gold rather than physical gold itself as part of their reserves, but now holding unallocated gold doesn't help with meeting their requirements. Unallocated gold (or paper gold as it is often called) basically means you have an IOU to a bit of physical gold from a bank or a future bit of gold once it has been produced. In theory this sounds ok, but the issue that arises with paper gold tends to be banks issuing more IOUs than actual gold and future gold exists and treating these IOUs as of equal value to physical bullion. And of course, if you massively increase the apparent supply of gold with paper IOUs, you make it look like gold is less scare and thus you can control the price (and rig the futures market to make yourself a lot of money), something JP Morgan got fined almost 1 billion dollars for doing not long ago!
Basically put, Basel III means physical gold has become much more important in the banking world, and I believe it would be reasonable to assume banks are going to be looking to get their hands on more of it in the foreseeable future. Not to offer financial advice, but the old adage 'buy the rumour, sell the news' might be something worth considering in this scenario.
Why does this matter for crypto?
Well, many in the cryptocurrency space have promoted BTC as a form of digital gold, a new 'store of value' that may replace gold as the ultimate reserve form of wealth; in the eyes of some, this is a matter of when rather than if. Hyperbolic promoters aside, in my observations there isn't a strong consensus on BTC's status as hard money, particularly due to growing concerns regarding fungibility that have arisen from some miners and consortiums pushing 'clean/unmixed' or 'green' coins.
Regardless, markets and market prices as shaped as much by perception as much as by reality, and if significant players view gold and BTC as correlated (or as competitors), the outcome of Basel III regulations will impact BTC in some way, and by extension the rest of the crypto market. Perhaps gold will climb due to bank-related demand and BTC continue its long ongoing correction. Maybe gold will jump and BTC along with it. Perhaps in the light of ongoing 'Great Reset' rhetoric from debt-laded bureaucrats, both gold bullion and BTC will climb as individuals and corporations seek a measure of safety from USD and Euro inflation. Perhaps nothing at all will happen and the price manipulation of gold will continue! I don't claim to have the answer, but Basel III's recommendations are due to kick in on June 28 for European banks (and January 1 2022 for British banks), so keep an eye on what both gold and crypto around those dates as Basel III gets more news coverage.
Learn More
I've included some further reading in the references, the Goldmoney articles by Alasdair Macleod are more complex but excellent. Mike Maloney also takes a good look at Basel III and some of the macro consequences in this video:
