According to Bloomberg Business, finance and crypto trade groups are pushing global banking regulators to radically change the rules for cryptocurrency. They want the Basel Committee on Banking Supervision to eliminate limits and slash capital requirements for banks lending against pure cryptocurrencies like Dogecoin and Bitcoin. This would allow banks to use customer deposits to fund leveraged bets on assets with a combined market cap over $2 trillion, which represent no real economic activity. The committee’s chairman has suggested he’s open to revising standards that major members like the U.S. find too restrictive. This shift comes after a period where strict rules successfully insulated banks from the 2022 crypto crash that wiped out firms like FTX. The proposed changes could directly link the stability of the core banking system to the fate of joke tokens.
How We Got Here
Look, the original Basel approach was actually pretty sensible. It created a separate category for legit “tokenized” assets—like a digital dollar or stock on a blockchain—and said if they were properly redeemable and run by accountable companies, treat them like the real thing. But for pure crypto? The stuff with no underlying claim? Banks had to back any exposure 100% with their own loss-absorbing equity and keep it to a tiny sliver of their capital. That’s why when the crypto house of cards collapsed in 2022, the traditional banking system barely felt a tremor. The losses were contained to the people who chose to play that game. Now, with crypto prices soaring again and political winds shifting, the industry sees a huge opportunity. They want access to the trillions in cheap, stable funding that the banking system provides. And they’ve found a sympathetic ear.
The Fatal Flaw in the Argument
Here’s the thing. The trade groups’ argument, detailed in documents like this letter to the Basel committee, is that major cryptos should be treated like stocks or forex pairs if they show similar liquidity and volatility. But that’s a wild misdirection. Liquidity isn’t the same as value. A stock is a claim on future corporate earnings. A currency pair is tied to the economies of two nations. Dogecoin is a claim on… what, exactly? The hope that someone else will pay more for it later. It’s a digital marker backed by nothing. Treating them the same for bank capital purposes ignores this fundamental difference. It’s like saying lending against a roulette bet is the same as lending against a factory, as long as people are betting a lot on roulette.
Why This Is So Dangerous
So what happens if this goes through? Basically, your bank deposits—the money you think is safe—could be loaned out to a hedge fund making a 5x leveraged bet on the next memecoin dedicated to a fart. The bank’s risk would be marginally offset by a smaller capital cushion, as outlined in the Basel framework. When (not if) that speculative bubble pops, the losses wouldn’t just hit crypto bros. They’d hit the bank. And if it’s big enough, or enough banks are involved, we’re talking about a crisis that requires a taxpayer-backed rescue. We literally just had a stress test for this in 2022, and the old rules worked! Why on earth would we dismantle them now? It introduces a massive, needless threat to financial stability just so a few more people can get rich(er) on speculation. For a deeper look at the risks in these systems, the Bank for International Settlements has done work on the prudential treatment of cryptoasset exposures.
A Smarter Path Forward
I’m not against all innovation here. Some reforms might make sense. The current Basel standard is pretty harsh on “permissionless” ledgers—the public blockchains that anyone can validate. As industry reports note, this tech can improve payments and transactions. A more nuanced approach for genuine, asset-backed tokenized securities could be warranted. But that’s a far cry from unleashing bank leverage on pure crypto casinos. The promise of blockchain for real assets is one thing. Letting banks fund bets on Pepe the Frog coins is another. We shouldn’t confuse the two. If people want to gamble, that’s their choice. But using the protected, subsidized, and critically important banking system as the casino’s house bank is a catastrophic idea. Everyone should hope regulators remember the lesson of 2022 before they sign off on this.
