Bitcoin Advocate Group Challenges Basel’s 1,250% BTC Rule

TLDR

• The Bitcoin Policy Institute said it will challenge the Federal Reserve over Basel’s 1,250% risk weight on Bitcoin.
• Managing director Conner Brown said the group will submit a public comment on the Fed’s proposal.
• Brown described Bitcoin’s classification under Basel rules as a “toxic asset” and a category error.
• The Basel framework assigns Bitcoin a 1,250% risk weight, which requires a 1:1 capital backing for banks.
• The Federal Reserve said it will soon release rules to implement the final phase of Basel standards in the US.

The Bitcoin Policy Institute said it will push the US Federal Reserve to revise how regulators treat Bitcoin under Basel rules. The group plans to submit a public comment after the Fed announces a proposal on bank asset risk weighting. The move targets a 1,250% risk weight that classifies Bitcoin as a high-risk asset.

Bitcoin Advocate Group Targets 1,250% Risk Weight on BTC

The Bitcoin advocate group confirmed it will review the Federal Reserve’s upcoming proposal and submit formal feedback. Managing director Conner Brown said the group will ensure regulators “get Bitcoin’s treatment right.” He stated that Basel rules currently treat Bitcoin as a “toxic asset.”

Brown explained that the framework assigns Bitcoin a 1,250% risk weighting under Basel standards. He said this level stands harsher than virtually all other asset classes. He argued that the rule creates barriers for banks that serve Bitcoin users and companies.

In a blog post last month, Brown called the classification the “most punitive classification” in the Basel capital framework. He described the policy as a “category error” under global banking standards. He said the rule restricts banks from holding or servicing Bitcoin efficiently.

The Basel Committee on Banking Supervision proposed the framework in 2021. It placed crypto assets in its high-risk Group 2 category. It also limited Group 2 holdings to less than 1% of Group 1 assets.

Brown said the weighting forces banks to allocate capital equal to their Bitcoin exposure. He stated that the 1:1 capital requirement increases costs for banks holding BTC. He added that the rule limits financial services for Bitcoin companies.

Federal Reserve to Seek Comment on Basel Implementation

The Federal Reserve announced it will issue a proposal for public comment on Basel risk-weighting guidance. The guidance outlines how banks should measure asset risk on their balance sheets. The central bank said it will release the proposal in the coming weeks.

Federal Reserve Vice Chair for Supervision Michelle Bowman addressed the upcoming rules on Thursday. She said the agency will implement the final phase of Basel standards in the United States. She stated the goal is “more efficient regulation and banks that are better positioned to support economic growth, while preserving safety and soundness.”

Under Basel rules, cash, physical gold, and government debt carry a 0% risk weight. Banks do not need additional capital to hold those assets. In contrast, Bitcoin carries the highest assigned risk weight.

The 1,250% risk weight requires banks to fully back Bitcoin holdings with approved capital. This requirement makes BTC more expensive to hold than many traditional assets. The Federal Reserve will accept public comments once it releases the proposal.

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