Cryptocurrency advocacy organization challenges Basel Committee's harsh Bitcoin regulations
As the Federal Reserve prepares to unveil Basel framework implementation proposals, the Bitcoin Policy Institute aims to ensure proper regulatory treatment of Bitcoin by US authorities.
According to the Bitcoin Policy Institute (BPI), the organization plans to urge the US Federal Reserve to reconsider its approach to Bitcoin classification, with the central bank preparing to release regulations governing how financial institutions should apply international standards for asset risk weighting.
"BPI will be reviewing this proposal closely and submitting a public comment to ensure that US regulators get Bitcoin's treatment right," Bitcoin Policy Institute managing director Conner Brown said in an X post on Wednesday.
The announcement follows closely after the Fed's Tuesday declaration that it would release a proposal for public feedback regarding how American banking institutions should adopt risk-weighting guidelines from the Basel Committee on Banking Supervision, which establish the risk levels of various assets held on a bank's balance sheet.
According to Brown, Bitcoin (BTC) is "treated as a toxic asset under the Basel framework, a global standard for banking regulations.
Brown noted that the cryptocurrency carries a 1,250% risk weighting, which he characterized as "harsher than virtually all other asset classes."
Fed targets "more efficient regulation" with new framework
Michelle Boman, the Federal Reserve vice chair for supervision, announced on Thursday that the regulatory body would be introducing rules within the coming weeks to establish the final phase of Basel implementation in the United States.
Bowman said that the aim is "more efficient regulation and banks that are better [positioned] to support economic growth, while preserving safety and soundness."
Under the 1,250% capital requirement, financial institutions are obligated to support any Bitcoin holdings on their balance sheets with a 1:1 ratio of approved collateral, resulting in significantly higher costs for holding the digital currency compared to alternative asset classes.
By contrast, cash, physical gold and government debt carry a 0% risk weight under the Basel framework.
Bitcoin Policy Institute condemns "the most punitive classification"
In a blog post published last month, Brown characterized the treatment of Bitcoin as the "most punitive classification" in the Basel Committee's capital framework and a "category error."
During 2021, the Basel Committee put forward a proposal to classify crypto within its high-risk Group 2 set of assets. Group 2 holdings were restricted to under 1% of the value of their Group 1 holdings.
"This risk weighting makes it extremely difficult for banks to provide financial services to Bitcoiners and Bitcoin companies," Brown said.