While JP Morgan’s CEO Jamie Dimon is notoriously a crypto skeptic, Bloomberg reported (citing sources) that the bank will begin accepting bitcoin ETFs as collateral for loans to wealthy clients, starting with BlackRock’s iShares Bitcoin Trust. Additionally, the bank will consider crypto holdings when assessing clients’ net worth and liquid assets. The collateral decision is particularly interesting because it navigates complex Basel Committee rules for banks involved with crypto-assets.

Notably, the bank is willing to accept Bitcoin ETFs as collateral but there’s no mention of directly accepting bitcoin itself. A bitcoin ETF is legally a stock Typically, wealthy clients taking out loans might put up their homes, stocks or other assets as collateral. Rather than transferring the asset to the bank, they usually pledge it.

In the United States, there are clear rules for pledging stocks under the US Uniform Commercial Code (UCC). However, if a client wanted to provide bitcoin as collateral, it would be trickier. While the UCC was amended in 2022 to clarify the legal position for using crypto as collateral, some US states have yet to adopt the amendment.

The fact that an ETF is technically a stock becomes quite relevant under Basel rules. The Basel Committee for Banking Supervision (BCBS) formulated rules that apply to banks worldwide to ensure minimum capital and liquidity requirements. It also created specific rules for crypto-assets, including tokenized securities, stablecoins and cryptocurrencies.

Notoriously, cryptocurrencies carry a 1,250% risk weighting, meaning for every dollar of exposure, a bank must set aside a dollar in capital. A bitcoin ETF is not a crypto-asset? Technically, a bitcoin ETF is not a crypto-asset under Basel definitions: “Cryptoassets are defined as private digital assets that depend on cryptography and distributed ledger technologies (DLT) or similar technologies.” (SCO 60.1) An ETF may reference a crypto-asset, but it is not one itself.

This distinction matters because Basel rules (SCO 60.30) explicitly state that most crypto-assets cannot be treated as collateral, except for tokenized securities on permissioned blockchains. Notably, stablecoins also don’t qualify as collateral. Since a bitcoin ETF is a stock, not a crypto-asset, it potentially could be counted as collateral under traditional Basel rules.

The Basel calculation dilemma Here’s where it gets interesting. If I borrowed $100,000 without collateral, the bank would have a 100% risk weighted asset (RWA) exposure. If I pledged $150,000 in traditional stocks and the bank applied a 25% haircut, the $112,500 of effective collateral would more than offset the loan risk, potentially reducing the bank’s RWA to zero.

Given that an ETF is technically a stock, a bitcoin ETF should provide similar collateral benefits. But there’s a problem. Basel rules also define what constitutes “exposure” to crypto-assets: “For the purposes of this chapter, the term ‘exposure’ includes on- or off-balance sheet amounts that give rise to credit, market, operational and/or liquidity risks.” (SCO 60.4) That $150,000 bitcoin ETF posted as collateral creates an off-balance sheet crypto “exposure” subject to the 1,250% risk weighting.

So the bank faces a double burden: 100% RWA for the loan plus 1,250% RWA for the crypto exposure. In this scenario, the bank would actually be better off not taking any collateral at all. Basel’s safety net Recognizing this could create perverse incentives, Basel includes a crucial safeguard outside the crypto rules: “No transaction in which credit risk mitigation (CRM) techniques are used shall receive a higher capital requirement than an otherwise identical transaction where such techniques are not used.” (CRE 22.3) In other words, any collateral is always better than no collateral for regulatory purposes.

The practical outcome For Basel purposes, banks taking bitcoin ETF collateral are treated as having 100% RWA exposure for the loan—as if they took no collateral at all. While this is far better than the 1,250% alternative, it means banks receive no capital benefit from the collateral, unlike traditional stock collateral which could reduce RWA to zero. The result is that banks will likely charge clients higher rates on loans with crypto ETF collateral compared to traditional stock collateral.

They’re not being discriminatory – they’re simply passing on the higher regulatory capital costs to their clients. Broader implications Off balance sheet crypto exposures Banks can now take substantial crypto exposure through ETF collateral while avoiding the full 1,250% capital hit that direct crypto holdings would incur. The definitional gap around crypto ETFs creates a pathway for banks to accumulate crypto risk without proportional capital requirements.

JP Morgan as a trendsetter As one of the world’s largest banks, JP Morgan’s acceptance of crypto ETF collateral could signal broader industry adoption. If major banks begin routinely accepting crypto ETFs as collateral, it represents a significant avenue for crypto exposure to enter the traditional banking system. Unlike direct crypto holdings, this exposure accumulation happens through the “back door” of collateral arrangements, potentially making it harder for regulators to monitor and measure systemic crypto risk.

Market dynamics shift This development might fundamentally alter demand patterns in the crypto market. Wealthy investors may increasingly prefer crypto ETFs over direct bitcoin holdings, since ETFs now offer a pathway to crypto-collateralized lending that direct crypto assets don’t yet provide. It also gives crypto ETFs a functional advantage over direct crypto ownership for high net worth individuals seeking to leverage their crypto exposure while maintaining portfolio liquidity.

Potential regulatory responses and consequences The Basel Committee could move to close this exposure gap by expanding the definition of crypto-assets to include instruments that “reference” crypto assets. However, such a regulatory fix might create new problems. If crypto ETFs became subject to the same punitive capital treatment as direct crypto holdings, it could drive investors toward even riskier alternatives.

Companies like MicroStrategy (now called Strategy), which holds bitcoin on its balance sheet, currently trade at significant valuation premiums to their underlying assets. A regulatory crackdown on crypto ETFs might inadvertently channel investment toward these corporate vehicles, which are arguably far riskier. There’s also a geopolitical dimension to consider.

The US is already moving to relax bank capital requirements. If Basel tightens crypto related rules, there might be pressure on US regulators to diverge from international standards rather than impose additional restrictions on American banks. Such regulatory divergence could create competitive advantages for US banks while potentially undermining the global consistency that Basel rules are designed to achieve.

This tension between national competitiveness and international regulatory harmony may become a defining issue as crypto integration into traditional finance accelerates.