The Basel Committee on Bank Supervision (BCBS) has adopted a new standard on the regulatory treatment of crypto-based assets held by banks (the “Basel Crypto Standard”) in December 2022[1]. Member states of the Basel Committee have committed to implement it by 1 January 2025. The Basel Crypto Standard imposes prohibitive capital requirements for most crypto-assets held by banks. Switzerland, one of the founding members of the Basel Committee, has now delayed implementation for at least a year.Switzerland is not only home to a large ecosystem of highly regulated crypto services providers, including two crypto banks. Switzerland’s Financial Market Supervisory Authority (FINMA) was also the first regulator to impose specific capital requirements on crypto assets, imposing a risk weight of 800% and an exposure limit of 4% of total capital. FINMA did this without a specific legal basis, in the form of a letter to the Association of Audit Firms.[2]Punitive Capital RequirementsThe Basel Crypto Standard goes much further. It imposes a 1,250% risk weight on most crypto assets and an exposure limit of 1% (but in no case more than 2%) of a bank's Tier 1 capital. The 1,250% risk weight is the highest known under the Basel Capital Accord. While touted by the Basel Committee as a “conservative treatment”, it translates into capital requirements of 130% to 200% of the book value of crypto-assets, depending on the size of the bank and taking into account capital buffers. The 1,250% risk weight applies not only to cryptocurrencies, but also to most stablecoins. It would also apply to all crypto-assets that use a public blockchain, such as Ethererum, under a proposal put forward by the Basel Committee at the end of 2023.One would assume that the Basel Committee would be able to support such requirements with robust evidence. However, the only paper that discusses the risks that crypto-assets pose to banks is a working paper published in 2019.[3] It has never been updated and has now been refuted in a position paper published by the Swiss Blockchain Federation (SBF).[4] In the BCBS working paper, much emphasis was placed on the market risks arising from the increased volatility of crypto-assets. The SBF position paper points out that while it is true that cryptocurrencies have traditionally shown a high to very high level of volatility, it has decreased significantly since 2020 and is now similar to the volatility of early tech stocks such as Apple, Amazon, Microsoft or Tesla. Cryptocurrencies have no credit or counterparty risk, unlike stablecoins, which are not particularly volatile assets.Unconstitutional and not Technological NeutralThe purpose of the Basel Crypto Standard is therefore not so much to protect banks from the risks of holding crypto-assets on their balance sheets, but rather to create a firewall between the banking system and the crypto industry. Obviously, this approach would contradict the principle of technology-neutral regulation (same business, same risks, same rules) and would also be fundamentally at odds with Switzerland's strategy of creating a clear regulatory framework for the Blockchain industry. Switzerland was indeed one of the first jurisdictions to authorize banks and other financial service providers to specialize in the crypto business.The SBF position paper also points out that the Basel Crypto Standard would be incompatible with the Swiss Federal Constitution[5]. The indiscriminate application of prohibitive capital requirements to different crypto assets with completely different risk profiles violates the principle of legal equality (Art. 8 Federal Constitution). Under the constitutional principle of proportionality (Art. 5 Federal Constitution), the proposed regulation can only be justified if it is suitable and necessary to achieve a public interest and if it is reasonable for those affected. It will be difficult for the authorities to demonstrate capital requirements greatly exceeding the maximal loss risk for a bank to meet this test. The exposure limits for crypto risks constitutes a violation of economic freedom (Art. 27 Federal Constitution) since it would require banks to hold 50 or 100 million of CET1 capital for each million of crypto-assets. Last, but not least, the SBF argues that the statutory basis for bank capital requirements would not support the Basel Crypto Standard requirements, since under Art. 4(2) Banking Act minimum capital requirements may be set only "in accordance with the business activity and the risks".[6]Implementation DelayedThe SBF position paper therefore concludes that an adoption of the Basel Crypto Standard by Switzerland is neither politically/strategically sensible nor legally feasible. Recognizing that holding crypto assets may entail increased risks for banks that may not be fully covered by existing regulation, the SBF supports tailored regulation to address real risks. The Swiss authorities have not yet responded to this proposal, but have announced that they will delay the implementation of the Basel Crypto Standard by at least one year.While the SBF’s analysis focuses on Swiss law, the issue of strategic incompatibility is also on the table in other jurisdictions. For example, the EU Markets in Crypto-Assets Regulation (MiCA) allows credit institutions to provide crypto-asset services by means of a simple notification (Art. 60 MiCA). Imposing capital requirements that effectively prevent credit institutions from entering the crypto business is contrary to the policy underlying MiCA. ^{[1] BCBS, Prudential treatment of cryptoasset exposures (16 December 2022). https://www.bis.org/bcbs/publ/d545.htm [2]  Brief der FINMA an EXPERTSuisse v. 15. Oktober 2018 (unpublished). [3] BSBS, Designing a prudential treatment for crypto-assets (12 December 2019). https://www.bis.org/bcbs/publ/d490.htm [4] Swiss Blockchain Federation, Übernahme des Basler Krypto-Standards durch die Schweiz, Positionspapier (23. Januar 2024). https://blockchainfederation.ch/downloads/ [5]  https://www.fedlex.admin.ch/eli/cc/1999/404/en [6] https://www.fedlex.admin.ch/eli/cc/51/117_121_129/de}