The Basel III rules, which dictate bank capital requirements, are slated for updates in 2026. Market analyst Nic Puckrin believes that if Bitcoin (BTC) receives a lower risk rating with the updated regulations, it could lead to a substantial influx of liquidity into BTC. Currently, under the Basel framework, BTC is assigned a 1,250% risk weight; banks are thus required to hold reserves on a 1:1 ratio for any Bitcoin they manage.

This stringent capital requirement presents significant hurdles for banks wishing to hold BTC or offer related services, as Puckrin explained:

“The Fed just announced a proposal on how these rules will be implemented in the US, with a 90-day public comment window. If BTC’s treatment improves even slightly, it could open the door for banks to finally integrate BTC into the financial system.”

Previously, in February, executives from various cryptocurrency treasury companies advocated for reforms to the Basel regulations to establish more favorable risk assessments for digital assets. This would facilitate banks’ participation in the blockchain economy.

Basel Rules Create Additional Barriers

The Basel Committee on Banking Supervision (BCBS) proposed the existing capital requirements for cryptocurrencies in 2021, categorizing them in the highest risk group. Under the current guidelines, while BTC and cryptocurrencies face a 1,250% risk weight, investment-grade corporate bonds carry a mere 75% risk weight. As Jeff Walton, chief risk officer at Strive, noted, traditional safe assets like gold and government bonds hold a 0% risk weight.

He further remarked that “risk is mispriced.”

The Basel capital requirements subtly limit the growth of the crypto sector, creating more barriers than direct efforts to marginalize crypto organizations, as pointed out by Chris Perkins, president of CoinFund.

“It’s a very nuanced way of suppressing activity by making it so expensive for the bank to do those activities.”