Basel III's Crypto Standard Makes Banks $125 for Every $100 of Bitcoin

The Basel Committee on Banking Supervision's (BCBS) new standard for crypto assets has made it economically catastrophic for banks to hold Bitcoin and other unbacked cryptocurrencies. Under the standard, known as SCO60, unbacked crypto assets are classified in 'Group 2b' and carry a 1,250% risk weight, compared to the 100% risk weight of standard equities.

This means that for every $100 million of Bitcoin held by a bank, it must post $125 million in qualifying capital. The rule took effect on January 1, 2026, and has already had a significant impact on banks' willingness to hold crypto assets.

The exposure cap is also a major constraint, limiting the total amount of unbacked crypto that banks can hold to 1% of their Tier 1 capital. For a mid-size bank with $50 billion in Tier 1 capital, this caps their Group 2b book at $500 million, which is barely enough to cover one percent of BlackRock's iShares Bitcoin Trust (IBIT), which has over $50 billion in assets under management.

The BCBS published its final standard on the prudential treatment of crypto asset exposures in December 2022, with a hard implementation deadline of January 1, 2026. The document classifies all crypto assets into two broad groups: Group 1 covers tokenized traditional assets and stablecoins that meet strict stabilization criteria, while Group 2 includes everything else, including Bitcoin and Ethereum.

Group 2 splits further into Group 2a, assets with a recognized hedging relationship to a traditional asset, and Group 2b, fully unbacked assets with no recognized hedge. Group 2b assets receive a 1,250% risk weight, which is the highest in the BCBS framework.

The US implementation process has created a notable bifurcation between the Federal Reserve's joint statement and the European Central Bank's guidance. The Federal Reserve confirmed the 1,250% risk weight for Group 2b assets but left hedge recognition rules unresolved, creating a conservative default that treats all Group 2b positions as fully unhedged.