Basel’s controversial 1,250% crypto risk weighting draws criticism

The controversial 1,250% risk weight assigned to cryptocurrencies under the Basel Committee on Banking Supervision’s global framework is facing mounting criticism from industry groups and crypto advocates ahead of a planned regulatory update set to take effect in 2026. The call comes as the global bank capital framework is scheduled for a review and potential update in 2026.

Sources close to the matter, speaking anonymously, disclosed that the Bitcoin Policy Institute will submit a public comment once the US Federal Reserve releases its proposal on how banks evaluate asset risks. This was after the Bitcoin advocacy group noted that it would review the upcoming proposal and later share official feedback.

Conner Brown, the Managing Director of the Bitcoin Policy Institute, issued a statement saying, “The group will work to ensure regulators get Bitcoin’s treatment right.”

According to him, “The Basel rules currently label Bitcoin as a toxic asset. Under Basel standards, Bitcoin is assigned a 1,250% risk weighting. This rating is tougher than almost all other types of assets.” Afterwards, Brown noted that this rule acts as a barrier hindering banks from providing services to Bitcoin users and businesses.

Additionally, they make it practically impossible for banks to hold BTC.

Individuals expressed eagerness for the anticipated amendments to the Basel rules

Market analyst Nic Puckrin proposed that if, by any chance, Bitcoin receives a lower risk rating under the new regulatory framework, then money flowing into the cryptocurrency will surge. At the moment, BTC and other similar digital assets are subject to a 1,250% risk weight under Basel’s guidelines.

This implies they are required to maintain a 1:1 reserve ratio to cover their Bitcoin balance sheet exposure, according to Puckrin. “The Fed has just proposed how these rules will be applied in the US and is allowing public comments for 90 days. If the treatment of BTC improves even a little bit, it could enable banks to finally include BTC in the financial system,” he added.

Meanwhile, reports dated February highlighted that several leaders of crypto treasury firms called on relevant authorities to amend the Basel rules to establish risk weights more favorable to digital assets, encouraging banks to actively participate in the blockchain economy.

Responding to this request, Michelle Bowman, the Vice Chair of the Federal Reserve, delivered a speech at the Cato Institute on March 12 this year, hinting that the central bank will soon release its proposed changes to capital requirements, including rules for the final phase of Basel III implementation in the US.

At this point, sources familiar with the matter highlighted that the Fed will vote on the revised proposal of the final phase of Basel III capital requirements as early as the week of March 16, 2026. Later, a 90-day public comment period will be initiated.

On the other hand, reports pointed out that Brown’s essay titled “Basel’s 1250% Mistake” stresses that the current methodology applied to Bitcoin is fundamentally flawed. Based on the Managing Director’s view, Basel incorrectly imposes the highest capital requirements on an asset characterized by high liquidity and zero counterparty risk, rather than using established market and operational risk guidelines.

Moreover, Brown outlined a crucial mechanical point: “a 1,250% risk weight multiplied by an 8% minimum capital ratio results in a requirement equal to 100% of exposure before adding any buffers or internal goals.” However, analysts discovered that this debate extends far beyond whether banks choose to hold Bitcoin.

In the meantime, apart from discouraging Bitcoin holding, Brown also noted that current rules undermine the overall economics of banking associated with this digital asset.

Brown outlines the impact of the Basel rules on cryptocurrency adoption 

In a statement, the Managing Director stressed that when the costs of Bitcoin exposure become expensive under current Basel rules, Bitcoin firms will face significant challenges in offering custody and financing services at scale. This challenge creates a significant gap between what banks can provide and what institutions need.

Concerning Brown’s argument, analysts conducted research. They discovered that while most crypto investors are not focused on technical banking terms, they are deeply interested in three key areas: better Bitcoin services from their banks, easier banking access for crypto companies, and deeper Wall Street involvement beyond just ETFs.

The current situation led the analysts to conclude that the established Basel rules are too stringent, hindering banks’ ability to address these issues. At the same time, reports noted that this situation stemmed from heightened tension between banks and the crypto industry in the United States, as they struggle over the delayed Clarity Act. Regarding this issue, US President Donald Trump maintained his stance that banks are to blame for the delay. 

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