Basel's Crypto Capital Rule Crushes Bank Appetite

The Basel Committee on Banking Supervision (BCBS) has implemented a new capital rule that makes it economically catastrophic for banks to hold Bitcoin and other unbacked crypto assets. The rule, known as SCO60, assigns a 1,250% risk weight to Group 2b assets, which includes unbacked cryptos like Bitcoin and Ethereum. This means that banks must hold $125 of capital for every $100 of Bitcoin on their balance sheet.

The effective 12.5x capital multiplier is the highest in the Basel framework, making proprietary ownership impossible for any bank operating within normal return-on-equity targets. The rule also introduces a hard exposure limit, capping total unbacked crypto exposure at 1% of Tier 1 capital.

Regulators have maintained the 1,250% risk weight for US banks but haven't finalized hedge recognition rules, creating a conservative default that treats all Group 2b positions as fully unhedged. In contrast, EU banks using cleared Bitcoin futures can apply a 250-basis-point reduction to their gross Group 2b exposure.