Bitcoin Policy Institute Challenges Basel Framework Over Bitcoin Risk Classification

The Bitcoin Policy Institute says it plans to challenge the way Bitcoin is treated under global banking standards as US regulators prepare to introduce new rules tied to international capital requirements.

The group stated it will review a forthcoming proposal from the Federal Reserve regarding how American banks should apply risk-weighting guidelines developed by the Basel Committee on Banking Supervision. These rules determine how much capital financial institutions must hold against various assets listed on their balance sheets.

According to the institute, the Basel framework currently assigns Bitcoin a 1,250% risk weighting, which critics argue classifies the digital asset as extremely high risk compared with most traditional financial instruments.

Federal Reserve Preparing Basel Implementation Proposal

Michelle Bowman, vice chair for supervision at the Federal Reserve, said the central bank plans to release a proposal for public comment outlining how the final phase of Basel regulations will be applied in the United States.

The initiative aims to create what regulators describe as more efficient oversight while ensuring that banks remain stable and capable of supporting economic growth.

Capital Requirements for Bitcoin Holdings

Under the current Basel guidance, the 1,250% risk weight effectively requires banks to fully back any Bitcoin holdings with approved collateral at a one-to-one ratio. This requirement significantly increases the cost for banks that want to hold or offer services related to the cryptocurrency.

By comparison, assets such as government bonds, cash and physical gold typically carry a 0% risk weight within the Basel framework.

Bitcoin Policy Institute Criticism of Basel Treatment

Conner Brown of the Bitcoin Policy Institute has described the classification as the most punitive category in the framework. The organization argues that such treatment makes it far more difficult for banks to provide financial services to Bitcoin users and companies.

In earlier proposals from 2021, the Basel Committee placed cryptocurrencies in a high-risk category known as Group 2 assets, limiting banks’ exposure to less than 1% of their safer holdings.

Disclaimer

This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.