The Basel Committee on Banking Supervision (BCBS) is re-evaluating its proposed 1250% risk weighting for banks’ investments in Bitcoin, a policy initially established in 2022. The potential revision, reported Monday, could trigger a substantial influx of liquidity into the cryptocurrency market, according to sources familiar with the ongoing discussions.
Currently, the BCBS classifies Bitcoin and other cryptocurrencies as “highest-risk assets.” This designation, under the Basel III regulatory framework, requires banks to hold significantly more capital in reserve when investing in such assets – specifically, 12.5 times the amount required for conventional investments. The high risk weighting effectively discourages banks from directly holding Bitcoin.
The impending review comes after pressure from cryptocurrency industry executives who argue the current regulations are overly restrictive and hinder institutional participation in the digital asset space. In February, executives reportedly urged the BCBS to adopt a more lenient approach to risk weighting, arguing it would allow banks to more actively engage with the blockchain economy.
The BCBS initially proposed the capital requirements for cryptocurrencies in June 2021, with the current stringent rules taking effect in 2022. The committee has been gathering feedback from stakeholders since then, leading to the second consultation published in June 2022 regarding the prudential treatment of cryptoasset exposures.
A reduction in the risk weighting could significantly alter the landscape for bank investment in Bitcoin. Lowering the capital requirements would make Bitcoin investments more attractive, potentially unlocking substantial capital flows. However, the BCBS has not publicly indicated the direction or extent of any potential changes. The committee is expected to continue its deliberations, with no firm timeline for a final decision.
