The next big Bitcoin policy battle may have nothing to do with ETFs or government legislation, but with a dry Federal Reserve capital proposal that most investors will never read.
The situation is simple. Will major banks continue to treat Bitcoin as a risk on their balance sheets, or will U.S. capital controls begin to open the door for more serious bank intermediation with respect to Bitcoin?
The Federal Reserve is expected to vote on amendments to the Basel proposal next week, followed by a 90-day comment window, making this little-noticed rulemaking potentially one of the most important banking decisions for Bitcoin in years.
Reuters reported on March 12 that the Federal Reserve plans to vote next week on Basel amendments for large banks, followed by a 90-day public comment period.
Michelle Bowman, the Fed’s vice chair for oversight, also said on the same day that proposals targeting Basel III and the G-SIB surcharge will be released within the next week.
While most crypto investors don’t care about prudential terminology, they do care about whether banks end up offering better Bitcoin services, whether crypto companies can more easily secure relationships with banks, and whether Wall Street consolidation extends beyond ETFs.
The current Basel framework is very restrictive, so it is very difficult for banks to answer these questions.
This all comes as tensions between the US crypto industry and banks continue to rise over the stalled Clarity Act. This month, the president took the side of blaming the banks directly for the delays.
“Banks are achieving record profits and we will not allow them to undermine our strong crypto agenda.”
Basel’s current statement
Under the Basel Cryptocurrency Framework, banks’ cryptocurrency exposure is divided into Group 1 and Group 2, with the latter being the tighter bucket.
Group 2 crypto assets will be treated as Group 2b unless the bank certifies to the supervisor that it meets the Group 2a hedge recognition criteria. Group 2b exposures have a risk weight of 1250%, and Basel says the treatment is adjusted so that banks hold a minimum risk-based capital equal to the value of these exposures.
Basel also said that total Group 2 exposures are built around the 1% and 2% Tier 1 capital standards, with banks expected to remain below 1%, with anything above 1% receiving harsher Group 2b treatment, and if exposures exceed 2%, all Group 2 exposures will receive Group 2b treatment.
A bank with $100 billion in Tier 1 capital is expected to have total Group 2 crypto exposure of less than approximately $1 billion. Above $2 billion, all Group 2 exposures will receive the more stringent Group 2b treatment.
For the biggest banks, that’s enough room to experiment, but not enough to make Bitcoin a regular balance sheet asset under the current framework.
Under the Basel framework, a Group 2a path is granted to cryptoassets that meet hedge recognition criteria, such as the existence of regulated exchange-traded derivatives, ETFs/ETNs, and minimum liquidity thresholds.
For group 2a, the framework uses a modified market risk treatment with a risk weight of 100% for the net position, rather than the 1250% treatment for group 2b.
Basel’s default treatment of unbacked cryptocurrencies is punitive and direct exposure remains prohibitively expensive unless banks qualify for the narrower 2a path.
| Basel category | what it means | treatment of capital | Why it matters to banks |
|---|---|---|---|
| group 2b | Default harsher treatment of unbacked cryptocurrencies unless narrower criteria are met | 1250% risk weight | Direct exposure to Bitcoin is very expensive |
| group 2a | If the hedge recognition criteria are met, the path becomes narrower | 100% risk weight on net position | More viable than 2b, but still more limited |
| Less than 1% of Tier 1 capital | Expected upper limit for group 2 total exposure | Non-punitive thresholding | Give banks room to experiment, not scale |
| Between 1% and 2% of Tier 1 capital | If it exceeds 1%, it will be treated more harshly. | Increase in death penalty | Prevent increases in crypto exposure |
| 2% or more of Tier 1 capital | All Group 2 exposures receive Group 2b treatment | thorough harsh treatment | Effectively discourages the use of regular balance sheets |
Relationship between permission and capital
Capital rules determine not only what banks can do legally, but also what they can do economically.
If capital remains tight, large banks will still have strong incentives to avoid meaningful Bitcoin inventory, financing, primary market making, and other balance sheet-heavy services.
If it softens, or if the US draft provides a clearer and more accessible path for low-risk treatments, the long-term effect could be an increase in Bitcoin bank custody, financing, execution, and infrastructure.
The US is already reopening the banking side of cryptocurrencies. In March 2025, the OCC reaffirmed that crypto asset custody, certain stablecoin activities, and participation in independent node verification networks are permissible for national banks, eliminating previous no-objection hurdles.
In April 2025, the Federal Reserve and FDIC rescinded two 2023 joint statements on crypto-asset-related activities, stating that banks may engage in crypto-asset activities that are both safe and prudential and permissible.
In December 2025, the OCC stated that banks may act as intermediaries for “risk-free principal” crypto transactions.
This means that the policy bottleneck is increasingly shifting from permits to capital.
Washington could open the legal door to crypto banking while keeping the economic door largely shut. Banks may be allowed to touch cryptocurrencies in more ways than they did two years ago.
But even if Basel puts Bitcoin in a tough spot, big banks still have little reason to increase significant exposure on their balance sheets.
global context
In November 2025, the Basel Committee announced that it would facilitate a targeted review of crypto asset standards, and in February 2026, it announced that it had discussed the progress of that review.
In a December 2025 BIS speech, he said that banks’ exposure to crypto assets would remain at just over €14 billion at the end of 2024, leaving the banking industry “almost unaffected” by price fluctuations in crypto assets.
That makes the current US debate even more interesting. Integration between cryptocurrencies and banks remains limited, in part due to the treatment of capital.
Basel’s own document states that, on a segregated basis, some crypto-related custodial services generally do not trigger the same credit, market, or liquidity requirements as direct exposure. However, operational risks and supervisory issues still arise.
Therefore, the greatest impact of stringent capital treatment is on principal risk and scalable balance sheet activity.
Essentially, this case is a conflict between two visions of Bitcoin.
Some say Bitcoin should continue to be a service only offered by banks on margin. The other argues that Bitcoin should eventually become a bankable infrastructure, lending, storing, hedging, and brokering within the same institutions that already handle other major asset classes.
The Fed’s proposals next week will indicate in which direction US prudential policy is leaning.
potential consequences
The bullish case is that the US draft creates a more viable path for certain hedged Bitcoin or low-risk Bitcoin exposures, or at least signals a willingness to interpret the Basel Cryptocurrency Framework in a less punitive manner than many in the market currently assume.
This version gives banks more scope to provide custody-plus-finance, market-making, and other institutional services around Bitcoin, rather than suddenly increasing their Bitcoin holdings. Bitcoin became more bankable without being formally accepted.
The bear case is that the proposal would operationalize harsh treatment in a clear and visible way, leaving banks with little ambiguity and little room for expansion.
In that case, the 90-day comment window will be a forum for crypto companies and policy groups to argue that the U.S. is talking about innovation but keeping Bitcoin outside the banking core.
As a result, ETF-style access becomes more accessible to investors, but its adoption on bank balance sheets remains limited.
The black swan is that the draft exceeds market concerns, or that the debate surrounding the draft is captured by national security and AML concerns, strengthening rather than softening the prudential case for Bitcoin.
The focus will then be on the US’ strategic decision to keep Bitcoin primarily on the fringes of the regulated banking system.
| scenario | What this proposal means | What banks will likely do | What it means for Bitcoin |
|---|---|---|---|
| bull case | More viable paths for certain hedged or lower risk exposures | Expanding custody plus finance, market making, execution and infrastructure | Bitcoin becomes more bankable |
| bear case | Harsh treatment remains clear and restrictive | Limit exposure and avoid escalation of balance sheet activity | Bitcoin remains largely outside of core banking |
| black swan | Proposals are further strengthened under the AML or national security framework | further away from direct exposure | The US effectively stores Bitcoin on the edge of its regulated banking system |
The Fed’s proposal could determine how banks treat Bitcoin as bankable infrastructure or balance sheet pollution.
That’s why this seemingly dry Fed vote is more important to Bitcoin’s long-term banking consolidation than most investors realize.