Basel III rules, which govern bank capital requirements, are due to be updated in 2026, and if Bitcoin (BTC) receives a lower risk rating in the revised rules, it could potentially result in a “massive” influx of liquidity into BTC, according to market analyst Nic Puckrin.

Under current Basel regulations, BTC and similar digital assets are assigned a risk weight of 1,250%, which means banks must hold reserve assets at a 1:1 ratio to back up the bitcoins held on their balance sheets, Puckrin he said.

He added that these restrictive capital requirements make it “almost impossible” to own BTC or offer BTC-related services. He said:

“The Fed has just announced a proposal to implement these rules in the US, with a 90-day public comment period. If treatment of BTC improves even slightly, it could open the door for banks to eventually integrate BTC into the financial system.”

In February, several cryptocurrency company executives called for reform of Basel rules to implement more adjusted risk weights for digital assets that would allow banks to participate in the blockchain economy.

Related: A group of Bitcoin supporters fighting against the “toxic” treatment of cryptocurrencies in Basel

The Basel rules create a different kind of bottleneck

The Basel Committee on Banking Supervision (BCBS) has proposed current capital requirements for cryptocurrencies for 2021, which placed cryptocurrencies in the highest risk category.

While BTC and cryptocurrencies have a risk weight of 1,250% under current regulations, investment grade corporate bonds have a risk weight of up to 75%. According to to Jeff Walton, chief risk officer at Bitcoin treasure company Strive.

Walton said gold, government bonds and cash have a 0% risk weight, adding that “the risk is mispriced.”

Basel’s capital requirements are a hidden form of strangulation of the cryptocurrency industry and are more subtle than Operation Chokepoint 2.0’s efforts to debank crypto companies, Chris Perkins, CEO of investment firm CoinFund, told Cointelegraph.

“It’s a very diverse way of suppressing activity that makes it so costly for a bank to conduct this activity,” Perkins said.

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