Introduction
JP Morgan is reportedly preparing to allow its wealthier clients to use their stakes in cryptocurrency exchange-traded funds (ETFs), such as BlackRock’s iShares Bitcoin Trust, as collateral for loans. Typically, wealthy borrowers can pledge their homes, stocks or other assets as collateral. Instead of transferring the asset to the bank, they usually pledge it. US monetary policy has clear rules for pledging stocks under the US Uniform Commercial Code (UCC). However, this will be more difficult if a client wants to provide Bitcoin as collateral. But in a new development, JP Morgan’s CEO Jamie Dimon, who is notoriously anti-crypto, announced that the bank will start accepting Bitcoin ETFs as collateral for loans to wealthy clients, starting with BlackRock’s iShares Bitcoin Trust. In addition, the bank will take crypto assets into account when assessing clients’ net worth and liquid assets. It is willing to accept Bitcoin ETFs as collateral but there is no talk of directly accepting Bitcoin itself.
Details of Jp Morgan Accepting Crypto ETFs as Collateral
According to unnamed sources cited by Bloomberg, the bank will start taking crypto assets into account when assessing a client’s net worth and liquid assets. This will place cryptocurrencies on a similar footing to real estate and vehicles when assessing a borrower’s capacity to repay loans. The move reflects an ongoing shift in the bank’s stance on digital assets.
The fact that an ETF is technically an equity security becomes very important under the Basel rules. The Basel Committee on Banking Supervision (BCBS) has formulated rules that apply to banks worldwide to ensure minimum capital and liquidity requirements. It also established specific rules for crypto assets, including tokenized securities, stablecoins and cryptocurrencies. As is well known, cryptocurrencies carry a risk weighting of 1,250%, meaning that for every dollar a bank has to set aside one dollar in capital. As a result, banks will likely charge their clients higher rates on crypto ETF collateralized loans compared to traditional equity collateral.
Is a bitcoin ETF not a crypto asset?
Technically, a Bitcoin ETF is not a crypto asset according to Basel definitions. “Crypto assets are defined as private digital assets based on cryptography and distributed ledger technologies (DLT) or similar technologies.”
An ETF may reference a crypto asset but is not itself a crypto asset. This distinction is important because Basel rules make it clear that most crypto-assets, other than tokenized securities on permitted blockchains, do not qualify as collateral. In particular, stablecoins also do not qualify as collateral. Since a Bitcoin ETF is a stock and not a cryptoasset, it could potentially count as collateral under traditional Basel rules.
The Basel rules also define what constitutes “exposure” to cryptoassets. The term ‘exposure’ includes amounts on or off balance sheet that give rise to credit, market, operational or liquidity risks.” The $150,000 Bitcoin ETF posted as collateral creates an off-balance sheet crypto “exposure” subject to a 1.250% risk weighting. So the bank faces a double burden. 100% RWA for the loan plus 1,250% RWA for the crypto exposure.
Basel’s safety net
Recognizing that this could create perverse incentives, Basel includes a very important safeguard outside the crypto rules. “No transaction in which credit risk mitigation (CRM) techniques are used will receive a higher capital requirement than an otherwise identical transaction in which such techniques are not used.” In other words, any collateral is always better than no collateral for regulatory purposes.
Off-balance sheet crypto risks
Banks can now take on significant crypto risk through ETF collateral while avoiding the 1,250% capital hit that direct crypto assets would incur. The definitional loophole around crypto ETFs creates a way for banks to accumulate crypto risk without proportionate capital requirements.
JP Morgan as a trendsetter
The acceptance of crypto ETF collateral by JP Morgan, one of the world’s largest banks, could signal broader adoption in the industry. The fact that major banks have begun to routinely accept crypto ETFs as collateral represents an important way for crypto risk to enter the traditional banking system. Unlike direct crypto assets, this risk accumulation occurs through the “backdoor” of collateral arrangements, potentially making it harder for regulators to monitor and measure systemic crypto risk.
Impact on the Market
This development could fundamentally change demand patterns in the crypto market. Wealthy investors may increasingly favor crypto ETFs over direct Bitcoin holdings because ETFs now offer a crypto-collateralized lending path that direct crypto holdings do not yet provide. This also gives crypto ETFs a functional advantage over direct crypto ownership for high-net-worth individuals looking to capitalize on the crypto effect while maintaining portfolio liquidity. It also reflects changes in the regulatory environment in the US. Since taking office, President Donald Trump’s administration has taken a more positive stance towards digital assets in the eyes of the US crypto investor. First introduced in January 2024, the Spot Bitcoin ETFs have seen rapid growth and now manage $128 billion in assets, making them among the most successful ETF launches to date. The price of Bitcoin has also risen significantly in recent months, reaching a record high of $111,980 in May 2025. JPMorgan was among the first major US banks to experiment with blockchain technology and maintains relationships with firms like Coinbase. This latest decision allows more digital assets to enter the bank’s lending framework.
Potential regulatory responses
The Basel Committee could act to close this exposure gap by expanding the definition of cryptoassets to include instruments that “reference” cryptoassets. But such a “regulatory fix” could create new problems. If crypto ETFs are directly subject to the same punitive capital treatment as crypto assets, it could drive investors to even riskier alternatives. Companies like MicroStrategy that hold Bitcoin on their balance sheet currently trade at significant valuation premiums to their underlying assets.
Conclusion
A regulatory crackdown on crypto ETFs could inadvertently drive investments into these arguably much riskier institutional vehicles. There is also the geopolitical dimension to consider. The US has already moved to loosen bank capital requirements. If Basel tightens the rules on crypto, there could be pressure on US regulators to deviate from international standards rather than impose additional restrictions on US banks on cryptocurrency and digital assets. In addition, the ECB could provide a guide to crypto policy. Such regulatory divergence could potentially undermine the global consistency that the Basel rules were designed to achieve, while creating competitive advantages for US banks. This tension between national competitiveness and international regulatory harmonization could become a defining issue as crypto integration into traditional finance accelerates.
Disclaimer
This content has been prepared by the Darkex Research Team for informational purposes only. It does not constitute investment advice. All risks and responsibilities arising from your investment decisions are solely your own.
