The next big Bitcoin policy battle may have nothing to do with ETFs or government legislation, but with a dry capital proposal from the Federal Reserve that most investors will never read.
The landscape is simple: will big banks continue to treat Bitcoin as a balance sheet hazard, or will US capital rules start to allow room for more serious banking intermediation around it?
With the Fed expected to vote on a revised Basel proposal next week and then open a 90-day comment window, this little-noticed regulation could become one of the most important banking decisions for Bitcoin in years.
Reuters reported on March 12 that the Fed plans to vote on a revised Basel proposal for big banks next week and then open a 90-day public comment period.
Fed Vice Chair for Oversight Michelle Bowman said the same day that proposals related to Basel III and the G-SIB surcharge would be published in the coming week.
Most crypto investors don’t care about prudential terminology, but they do care about whether their bank will ultimately offer better Bitcoin services, whether crypto companies can more easily secure banking relationships, and whether Wall Street integration expands beyond ETFs.
The current Basel framework is restrictive enough to make it significantly more difficult for banks to answer these questions.
All this comes amid rising tensions between the US crypto industry and banks as they continue to clash over the stalled Clarity Act. The president took sides this month by directly blaming the banks for the slowdown.
“The banks are making record profits and we will not allow them to undermine our powerful Crypto agenda.”
What Basel says now
According to the Basel crypto framework, banks’ crypto exposures are split into Group 1 and Group 2, with the latter being the most difficult category.
A Group 2 crypto asset is treated as Group 2b, unless a bank demonstrates to its supervisor that it meets the recognition criteria for Group 2a hedging. Group 2b exposures have a risk weight of 1250%, and Basel says the treatment is calibrated so that banks maintain a minimum risk-based capital equal to the value of those exposures.
Basel also says that total Group 2 exposure is built around 1% and 2% of the Tier 1 capital thresholds: banks are expected to remain below 1%, more than 1% will receive the more severe Group 2b treatment, and if exposure exceeds 2%, all Group 2 exposure will receive Group 2b treatment.
A bank with $100 billion in Tier 1 capital is expected to keep Group 2’s total cryptocurrency exposure below about $1 billion. If it were to exceed $2 billion, all Group 2 exposure would be subject to the more stringent Group 2b treatment.
For the largest banks, that’s enough room to experiment, but not enough to make Bitcoin a normal balance sheet asset under the current framework.
The Basel framework enables a Group 2a path for crypto assets that meet hedging recognition criteria, including the existence of regulated exchange-traded derivatives or ETFs/ETNs, as well as minimum liquidity thresholds.
For Group 2a, the framework uses a modified market risk treatment with a 100% risk weight on the net position, instead of the 1250% treatment for Group 2b.
Basel’s default treatment of unbacked cryptocurrencies is punitive, and unless banks qualify for the narrower 2a path, direct exposure remains extremely expensive.
| Category Basel | What it means | Capital handling | Why it is important for banks |
|---|---|---|---|
| Group 2b | Stricter treatment by default for unbacked cryptocurrencies unless stricter criteria are met | 1250% risk weight | Makes direct exposure to Bitcoin extremely expensive |
| Group 2a | A narrower path if the criteria for hedging recognition are met | 100% risk weighting on net position | More workable than 2b, but still restrictive |
| Less than 1% of Tier 1 capital | Expected ceiling for total exposure to Group 2 | Less punitive threshold treatment | Gives banks room to experiment, not to scale |
| Between 1% and 2% of Tier 1 capital | More than 1% receive more severe treatment | Rising death penalty | Discourages the growth of cryptocurrency exposure |
| More than 2% of Tier 1 capital | All Group 2 exposures receive Group 2b treatment | Full hard treatment | Effectively blocks normal balance use |
Consent versus capital
Capital rules determine what banks can do economically, not just what they can do legally.
If capital treatment remains harsh, big banks will still have a strong incentive to avoid meaningful Bitcoin inventory, financing, major market making, and other balance sheet-intensive services.
If it mitigates, or if the U.S. design provides a clearer, more usable path to lower-risk treatment, the long-term effect could be more bank custody, financing, execution, and infrastructure for Bitcoin.
The US has already reopened the banking side of crypto. In March 2025, the OCC reaffirmed that crypto custody, certain stablecoin activities, and participation in independent node verification networks are permitted for national banks, removing a previous no-objection hurdle.
In April 2025, the Fed and FDIC withdrew two 2023 joint statements on cryptoasset-related activities and said banks may engage in permitted crypto activities consistent with safety and soundness.
In December 2025, the OCC said banks could act as intermediaries in “riskless principal” crypto transactions.
This means that the policy bottleneck is increasingly shifting from consent to capital.
Washington may open the legal door to crypto banking, while the economic door remains largely closed. Banks may be allowed to handle crypto in more ways than two years ago.
However, if Basel’s implementation leaves Bitcoin in the hard bucket, big banks still have little incentive to scale meaningful balance sheet exposure.
Global context
In November 2025, the Basel Committee said it would expedite a targeted review of its cryptoasset standard, and in February 2026 it said it had discussed progress on that review.
A BIS speech in December 2025 said that banks’ exposure to crypto assets stood at just over €14 billion at the end of 2024 and remained so limited that the banking sector was “largely immune” to crypto price fluctuations.
That makes the current American debate more interesting: the integration of crypto banks remains limited, and capital treatment is one of the reasons for this.
Basel’s own text states that some crypto-related custody services, on a segregated basis, generally do not give rise to credit, market or liquidity requirements in the same way as direct exposures. However, they still pose operational risks and supervisory issues.
Thus, the biggest impact of the strict treatment of capital is on principal risk and scalable balance sheet activity.
At its core, the current case is a conflict between two views on Bitcoin.
People say that Bitcoin should remain something that banks only serve on the margin. The other says that Bitcoin must ultimately become a bankable infrastructure: funded, held, hedged and brokered within the same institutions that already manage other major asset classes.
Next week’s Fed proposal will show which direction US prudential policy is leaning.
Potential outcomes
The bull case is that the US design creates a more workable path for certain hedged or less risky Bitcoin exposures, or at least signals a willingness to interpret the Basel crypto framework in a less punitive manner than many in the market currently assume.
In that version, banks will have more room for custody plus financing, market making and other institutional services around Bitcoin, instead of suddenly getting involved. Bitcoin became more affordable without being formally embraced.
The bear case is that the proposal puts the harsh treatment into practice in a clean and visible way, leaving banks with little ambiguity and little room for scale.
In that case, the 90-day comment window becomes a forum for crypto companies and policy groups to argue that the US is keeping Bitcoin out of the core of banking, even as it talks about innovation.
The result is more ETF-like access for investors, but still limited adoption on bank balance sheets.
The black swan is that the design goes beyond the market’s fears, or the debate surrounding it is gripped by national security or AML concerns in a way that hardens rather than softens the prudential case against Bitcoin.
Then the focus becomes a strategic American decision to keep Bitcoin largely on the fringes of the regulated banking system.
| Scenario | What the proposal would entail | What banks would probably do | What it means for Bitcoin |
|---|---|---|---|
| Taurus case | A more workable path for certain hedged positions or lower risk exposures | Expand custody plus financing, market making, execution and infrastructure | Bitcoin becomes more bankable |
| Bear case | Harsh treatment remains clear and limiting | Keep exposure limited and avoid scaling up balance sheet activities | Bitcoin remains largely outside of core banking |
| Black swan | The proposal is further hardened under AML or national security frameworks | Withdraw further from direct exposure | The US effectively keeps Bitcoin on the fringes of the regulated banking system |
This Fed proposal could decide how banks treat Bitcoin: as bankable infrastructure or as balance sheet taint.
That’s why this seemingly dry Fed vote is more important to Bitcoin’s long-term banking integration than most investors realize.