The 1,250% Rule — The Obscure Banking Regulation That Could Keep US Banks Away From Bitcoin

WHY IT MATTERS

Think of banks like buildings that need strong foundations. Regulators require banks to keep a financial cushion — called 'capital' — to absorb losses if their investments go bad. The size of that cushion depends on how risky the investment is. For something like a US government bond, the cushion is tiny because it's very safe. But under this 1,250% rule, Bitcoin is treated as the riskiest thing possible — banks would need to set aside $1 for every $1 of Bitcoin they hold. That's like being told you can buy a house, but you have to keep the entire purchase price in cash under your mattress 'just in case.' It makes holding Bitcoin pointless for banks from a business perspective. This matters because if banks can't hold or deal in Bitcoin efficiently, it slows down the path toward mainstream financial adoption.