Cody McGrath 
The Basel Committee on Banking Supervision recommended that banks limit their exposure to so-called Group 2 crypto assets to just 1% of their Tier 1 capital during its second consultation on the prudential regulation of crypto-asset exposures.
Group 1 digital assets are either traditional assets that have been tokenized, like synthetic stocks, or those that have strong stabilizing features, such as regulated stablecoins.
In accordance with the revised plan, Basel III’s risk-based capital requirements for traditional capital assets and Group 1 digital assets would be at least equal.
However, cryptocurrencies that don’t fit the aforementioned criteria will be categorized as Group 2 digital assets, which theoretically includes the majority of altcoins and significant non-stablecoin, non-tokenized cryptocurrencies like Bitcoin (BTC).
As a result, banks would be limited to investing 1% of their total equity or net asset value in Group 2 digital asset positions, whether long or short. In addition, banks may implement a 1,250 percent risk premium for Group 2 digital assets, according to the Basel Committee.
In contrast, depending on the company’s credit rating, equities often have a 20 percent to 150 percent risk premium linked to their nominal valuations. For appropriate leverage, a bank’s risk-weighted assets cannot exceed 10.5 percent of its Tier 1 capital under Basel III.
As an example, a bank would have to add $125 million in risk-weighted assets to its portfolio for every $10 million in Bitcoin purchased, making them significantly less lucrative than assets with lower risk-weighting premiums.
This move would likely severely limit banks’ ability to buy volatile cryptocurrencies in the future. Nearly all financial institutions in wealthy nations are required to abide by Basel III, an international regulatory agreement that is backed by legal sanctions.