The Federal Reserve is set to open a new chapter in the US Basel III debate next week, and for Bitcoin policy advocates the stakes are unusually clear: whether America’s biggest banks will inherit a capital regime that makes bitcoin effectively untouchable. Critics of the calibration argue that the fight against Basel’s 1,250% risk weight for certain crypto exposures makes the bank’s regulated holdings in Bitcoin uneconomical by design.
Bitcoin’s ‘Toxic’ Label Heads to Basel for Public Review
Conner Brown, managing director of Bitcoin Policy, saw the future proposal as a direct opening for this debate. “The Federal Reserve just announced that next week they will publish a public proposal on how Banks will implement the Basel weighting guidelines for the largest banks in America. Bitcoin is currently considered a toxic asset under the Basel rules, given a risk weight of 1250%, more severe than any other asset class. This risk weighting suggests that Bitcoin will be the best for financial companies.
This period follows the Fed’s broader recapitalization. In a speech on March 12 at the Cato Institute, the Fed’s deputy chairman for supervision, Michelle Bowman, said that the central bank “in the coming weeks” will propose rules to implement the final phase of Basel III in the United States, along with changes related to other capital requirements. Reuters reported that the Fed will vote on the proposal next week, after which the package is expected to be open for 90 days of public comment.
Brown’s accompanying essay, “Basel’s 1250% Error,” argues that the current treatment is a “category error.” His case is that Basel uses the strictest bucket of capital for assets it describes as transparent, globally traded and free of counterparty risk, instead of treating Bitcoin through existing market-risk and operational-risk frameworks. In the most important mechanical point of the paper, Brown asserts that a risk weight of 1,250% multiplied by a minimum capital ratio of 8% translates into a capital requirement equal to 100% exposure before adding internal buffers and targets.
So the issue goes beyond whether a bank wants bitcoin on its balance sheet. Brown argues that the current rule will not only discourage holdings; it disrupts the economy of bank intermediation around the asset in a big way. As the framework makes exposure to bitcoin too expensive, it will become more difficult for bitcoin companies to scale storage, financing and other regulated services, widening the gap between institutional demand and the banking system’s ability to meet it, he said.
The Fed proposal itself is not marketed as a cryptographic rewrite. Bowman’s speech focused mainly on revising capital rules across lending, market risk, operational risk and systemic banking surcharges so they better reflect what regulators see as real risk. But for Bitcoin policy groups, the upcoming comment window creates a rare opening to consider whether U.S. regulators should leave Basel’s most punitive crypto treatment unchanged or move toward a framework based on measurable risks rather than deterrence.
At press time, Bitcoin was at $71,394.
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