Basel Committee Slaps 1250% Risk Weight on Unbacked Cryptos

The Basel Committee has finalized new rules for treating cryptocurrencies and stablecoins in banking. Under the rules, unbacked cryptocurrencies like Bitcoin are assigned a 1,250% risk weight, putting them in Group 2b.

This classification means that banks holding $10 million in Bitcoin would need to allocate $10 million in capital against that position, as the 1,250% risk weight multiplied by the 8% minimum capital ratio equals 100% of the total exposure value. This requirement effectively acts as a capital deduction and makes bank intermediation uneconomic.

Stablecoins, on the other hand, can avoid this penalty if they meet Group 1b criteria, which includes redemption at the peg value and regulated entities. However, algorithmic stablecoins are unlikely to qualify for Group 1.