Basel in Panic? Global Watchdog Suddenly Softens Its Harsh Crypto Rules!
Global Crypto Regulations Shift as Basel Softens Controversial 1250% Risk Weight Rule
Global financial regulators are preparing for a major shift in their approach to cryptocurrency oversight after years of strict capital rules that many critics said were unworkable. The Basel Committee on Banking Supervision, widely regarded as the world’s most influential banking standards authority, has now signaled that its toughest rule yet—a 1,250% risk weight for bank-held crypto assets—needs urgent revision.
The reversal comes after the United States and the United Kingdom refused to implement the framework, a rare challenge from major economies that has forced Basel to reconsider the system it once defended as essential for global financial safety.
This marks one of the most significant turning points in recent crypto policy, reshaping expectations for how banks, exchanges, and institutional investors may participate in digital assets over the coming decade.
Basel Committee Concedes: The Crypto Framework Is Outdated
Erik Thedéen, Chair of the Basel Committee, acknowledged in an interview with the Financial Times that the rules no longer reflect current market realities. While the framework was introduced three years ago as a cautionary response to the rapid growth of Bitcoin and other volatile tokens, Thedéen now says regulators “need a different approach.”
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| Source: Crypto India X |
The admission is significant. For years, Basel defended the strict risk weight as necessary to protect global banks from extreme volatility and liquidity risks. But the rapid advancement of digital asset use—particularly the rise of stablecoins—has made policymakers rethink their assumptions.
Thedéen noted that the refusal of the US and UK to adopt Basel’s rules in full was a driving force behind the reconsideration. These two financial powerhouses cited concerns that the standards would block innovation, hinder banks’ competitiveness, and slow the integration of blockchain technology into mainstream finance.
“This is one of the few instances where major jurisdictions have signaled that Basel’s approach is misaligned with financial evolution,” said one international policy analyst.
Originally Designed for Bitcoin, Not Today’s Diverse Crypto Market
The 1,250% risk weight rule was created at a time when Bitcoin dominated discussions about digital assets. Basel viewed the market as highly speculative, prone to manipulation, and lacking institutional safeguards.
Under the original framework:
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Banks would need to hold $1 in capital for every $1 of crypto exposure,
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Making crypto activity almost economically impossible,
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Even for hedged, collateralized, or institutionally managed positions.
However, Basel later expanded the rule to include any asset using a permissionless blockchain. This unexpected grouping placed major stablecoins like USDC and USDT in the same category as highly volatile tokens, despite stablecoins being designed to maintain a fixed 1:1 value to the US dollar.
That decision triggered widespread criticism across the industry. Economists argued that lumping all blockchain-based assets together ignored major differences in technology, stability, liquidity, and use cases.
Banks said it was like treating a government bond and a lottery ticket as equally risky simply because both are printed on paper.
Major Pushback: US and UK Spark Regulatory Fragmentation
The US Federal Reserve and the Bank of England were the first major regulators to reject the Basel framework outright.
The Federal Reserve labeled Basel’s risk weights “not realistic,” noting that the approach failed to reflect increasingly regulated, audited, and institutionally used crypto platforms.
The Bank of England echoed the concern, saying the rule did not align with the UK’s own efforts to create a balanced, innovation-friendly regulatory environment.
Meanwhile, the European Union adopted portions of the Basel rulebook but intentionally excluded the most punitive elements, creating further inconsistency across global financial markets.
This fragmentation is unusual. Basel rules are traditionally adopted globally to maintain consistency in banking supervision. Divergence among major economies suggests a deeper disagreement about crypto’s long-term role in the financial system.
Stablecoin Market Growth Forced a Reassessment
Thedéen admitted that one of the biggest factors influencing Basel’s shift is the explosive growth of stablecoins, now a $300 billion global market.
The rise has been driven by:
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Institutional settlements,
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Retail payments,
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Tokenized assets,
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And new U.S. legislation, including the Genius Act, which formalizes stablecoin regulation.
Stablecoins have become deeply embedded in crypto trading, cross-border payments, and blockchain-based financial infrastructure. Treating them as high-risk speculative assets is now seen as outdated.
“Stablecoins are part of the core financial plumbing of digital asset markets today,” Thedéen said. “They cannot be evaluated using assumptions from three years ago.”
Banks Warned That the Rules Made Participation “Uneconomical”
Banks and financial institutions have long criticized Basel’s punitive approach. In a letter sent by global banking associations in August, policymakers were warned that the 1,250% rule “effectively makes it uneconomical for banks to meaningfully participate in the cryptocurrency asset market.”
As a result:
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Many banks avoided offering crypto custody services,
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Institutional liquidity remained slow to develop,
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And blockchain adoption within traditional finance lagged behind expectations.
Industry analysts say a softer Basel approach could dramatically reshape the digital asset landscape by lowering capital costs and unlocking institutional participation.
Institutional involvement, long seen as the “missing piece” for major crypto adoption, may accelerate once banks receive clearer, more workable global rules.
Consensus Still Hard: Regulators Remain Divided
Even with Basel’s acknowledgment that change is needed, Thedéen cautioned that reaching consensus will not be easy. The committee remains split over several core issues:
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Whether permissionless blockchains can be safely integrated into the global banking system,
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How stablecoins should be classified and supervised,
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Whether banks’ crypto exposure poses systemic risks,
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And how digital assets fit into the broader Basel III capital framework.
Thedéen also noted that internal disagreements have expanded beyond crypto, affecting climate risk standards and private credit oversight. This suggests that Basel’s next phase of negotiations may be lengthy and politically complex.
What This Means for the Future of Global Crypto Regulation
The Basel Committee’s shift marks a pivotal moment in global crypto policy. For the first time, the world’s top banking authority has recognized that treating all digital assets as hyper-risky is neither realistic nor sustainable.
A more balanced regulatory approach could:
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Encourage global banks to participate in digital asset markets,
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Increase liquidity and institutional adoption,
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Support the development of regulated crypto infrastructure,
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Strengthen transparency and investor protections,
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And accelerate blockchain-integrated payment systems worldwide.
However, the biggest challenge now is achieving a global agreement that reflects the needs of both innovators and regulators.
Conclusion
The softening of Basel’s 1,250% risk weight rule signals a meaningful evolution in how global authorities view crypto. While regulators once leaned heavily on caution, rapidly changing market realities—especially the rise of stablecoins—are pushing them to embrace a more nuanced approach.
If Basel successfully revises its standards, the shift could open the door for broader involvement from major banks and reshape institutional crypto adoption. But reaching global consensus will require navigating deep divisions among the world’s most powerful financial regulators.
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