From Cash to Crypto: Why Banks Avoid Bitcoin Under Basel III

International Basel III capital standards have created a strange situation in the market: cash in bank vaults practically requires no collateral (risk weight 0%), while Bitcoin, as a private asset, has received the highest risk category — 1,250%. This difference in regulatory approaches to various assets has sparked a wave of criticism from the crypto industry, which sees these regulations not so much as protection but as systematic suppression of innovation.

The Risk Weight Issue: How 1,250% Harms Bitcoin Adoption

When the Basel Committee on Banking Supervision (BCBS) introduced these rules in 2021, classifying cryptocurrencies in the highest risk category, many experts thought it was a temporary measure. However, in 2024, the committee finalized these capital requirements, meaning banks wanting to hold BTC on their balance sheets must back it with approved collateral at a 1:1 ratio.

In contrast, physical gold and government debt received a risk weight of 0%, just like cash. This approach makes holding Bitcoin more expensive compared to other asset classes and forces banks to seek alternatives. Jeff Walton, Chief Risk Officer of Bitcoin treasury company Strive, pointed out the obvious inequality: if the US aims to become the “cryptocurrency capital” of the world, such banking rules not only need evolution — they hinder legitimate business activity.

Capital Requirements and Profitability: The Economics of Holding Cash

The economics of this situation are simple. Banks are commercial entities seeking to maximize profitability. When holding Bitcoin requires five times more collateral costs than cash, the obvious decision is to hold cash. Chris Perkins, President of investment firm CoinFund, described this as “another kind of bottleneck” — not open de-banking, but a sophisticated method of hindering participation in crypto assets, making it unprofitable for banks.

Hao Li, head of Strategy at one of the largest Bitcoin treasury companies, also called for reforming the current system, emphasizing that excessive burdens on BTC create artificial competition among assets that do not reflect actual risks.

Calls for Change: Why the Industry Demands a Review of Basel III

Interestingly, regulators seem to be starting to listen to the criticism. In October 2025, reports indicated that BCBS was considering easing capital requirements for digital assets. This move was a response to the exponential growth of stablecoin capitalization, which approached $300 billion, according to data from RWA.xyz.

The following month, discussions intensified: Erik Tedein, head of BCBS, suggested that the international banking regulator might need a “different approach” to the 1,250% risk weight for cryptocurrencies. Many observers see this statement as a green light for future changes, especially regarding collateral requirements.

The Future of Regulation: Steady Evolution or Radical Reform?

The situation remains dynamic. If regulators truly move toward a fairer risk assessment system where Bitcoin is not simply penalized for being a cryptocurrency, it could open the door to a significant increase in bank demand for BTC.

However, the question remains: will this be genuine reform or just a softening of a system that still favors cash and traditional assets? For the crypto industry, the answer will be crucial for the future development of digital assets within the traditional financial ecosystem.