In a bold call for regulatory reform, Strategy CEO Phong Le has challenged the banking sector to reconsider how Bitcoin is treated under Basel guidelines. He argues that current capital requirements associated with Bitcoin exposure severely inhibit financial institutions from engaging with digital assets.
The controversy was ignited by a chart shared on X, which designates Bitcoin as “unsecured crypto exposure” and assigns it a staggering risk weight of 1,250%. In contrast, traditional assets like cash, physical gold, and US Treasuries receive a risk weight of a mere 0%.
A Capital Penalty For Bank Bitcoin Exposure
Le highlighted that this issue is not merely political but structural, as global capital rules seep into national banking regulations. He emphasized, “The Basel Accords set global bank capital standards and risk-weighting rules for assets. These frameworks materially shape how banks engage with digital assets, including Bitcoin.” This regulatory oversight is the product of the Basel Committee, a conglomerate of central banks and regulators across 28 jurisdictions, including the US.
Le pointed out that if the US aims to be the Crypto Capital of the World, it must urgently reevaluate its implementation of Basel capital treatment.
In a sharp observation, Jeff Walton, who posted the image Le cited, summarized the glaring disparity: “Basel III Risk weights for assets: Gold: 0%, Public equity: 300%, Bitcoin: 1,250%.” He remarked that if the US is to succeed as a crypto hub, the banking regulations need a fundamental overhaul since currently, “Risk is mispriced.”
The chart starkly illustrates the risk weight variations across asset classes. Cash and central bank reserves register at 0%, physical gold remains at 0%, while US Treasuries sit alongside them. The risk weights escalate, with investment-grade corporate debt at 20%-75%, unrated corporate debt at 100%, public equity ranging from 250%-300%, and private equity at over 400%. Bitcoin stands aloof at an alarming 1,250%.
Conner Brown, Head of Strategy at the Bitcoin Policy Institute, also weighed in, asserting that the practical implications of the 1,250% risk weight render bank intermediation of Bitcoin prohibitively expensive. He stated, “It’s hard to overstate how bad of a policy error this is,” explaining that banks must allocate capital based on regulators’ risk assessments for assets. The higher the risk weight, the more costly it is for banks to hold that asset.
Brown elucidated that the punitive 1,250% figure translates into a one-for-one capital requirement relative to Bitcoin exposure, meaning banks must hold $1 in capital for every $1 of Bitcoin. Meanwhile, gold enjoys a favorable treatment akin to cash, with virtually no capital cost.
A key point raised by Brown is the argument against penalizing Bitcoin in comparison to traditional assets, citing Bitcoin’s favorable characteristics for risk management, such as continuous trading, rapid global settlement, and transparent pricing. He asserted that these regulatory frameworks have effectively disincentivized banks from offering custody and related services that customers would prefer under regulated environments.
According to Brown, the implications of this regulatory stance extend beyond just bank balance sheets, affecting competitiveness. He warns that the current framework incentivizes activity to shift towards non-bank entities and offshore regions characterized by higher risks, which could ultimately disadvantage US institutions on the global stage.
As of the latest market update, Bitcoin is trading at $67,857, as it continues to capture the attention of investors and regulators alike.
