Bitcoin hits Federal Reserve’s 2026 stress test, posing huge capital risk to banks

Pierre Rochard’s call for the Federal Reserve to include Bitcoin in its stress tests comes at an unusual time. The Fed is seeking public comment on its 2026 scenarios, while also proposing new transparency requirements for how those models are built and updated.

The timing raises legitimate questions that have nothing to do with whether Roshard’s specific claims hold up. The question is, can the Fed treat Bitcoin as a stress test variable without “adopting” it as a policy measure?

The answer is not about ideology. It’s about plumbing work.

The reason the Fed has not made Bitcoin mainstream is because of the favorable wishes of its former Secretary of Strategy. But if banks’ exposure to Bitcoin through custody, derivatives, ETF brokerage, or prime brokerage-style services becomes large enough to move capital and liquidity metrics in a repeatable way, the Fed may eventually be forced to model BTC price shocks in the same way it models equity drawdowns and credit spreads.

This change is not an endorsement. That would indicate that Bitcoin is on a regulated balance sheet that cannot be ignored.

What does a stress test actually test?

The Fed’s supervisory stress tests feed directly into stress capital buffers, which require large banks to maintain capital above regulatory minimums.

This test predicts losses and profits under adverse scenarios and converts those projections into required capital. Scenario design is important because it determines comparability between companies. Banks facing the same hypothetical shock are valued under the same conditions.

For 2026, the Fed proposed a scenario using 28 variables ranging from the first quarter of 2026 to the first quarter of 2029.

This set includes 16 US indicators: 6 activity indicators, 4 asset prices, and 6 interest rates.
Internationally, the Fed models 12 variables across four blocs: the euro area, the United Kingdom, developing Asia, and Japan. The model tracks real GDP, inflation, and exchange rates, respectively.

The Fed specifically pointed out that the 2026 set is the same as the 2025 set. Bitcoin is not included.

Banks with large trading operations face additional global market shock factors that highlight broader risk factors such as stock indexes, credit spreads, commodity prices, foreign exchange and volatility aspects.

Banks with substantial trading or custody activities are also tested under counterparty default scenarios.

These components provide a natural entry point for Bitcoin. The Fed could incorporate the BTC shock into its global market shock framework without treating it as a core macroeconomic variable.

What makes Bitcoin eligible?

Four criteria need to be met for the Fed to treat Bitcoin as a scenario input, but none of the criteria requires the Fed to take a position on Bitcoin’s long-term viability.

The first is materiality. The exposure must be large enough to meaningfully change the post-stress capital ratio. The Fed’s own transparency proposal discusses “material model changes” in terms of their expected impact on common equity Tier 1 ratios, with thresholds ranging from 10 to 20 basis points.

This is not a Bitcoin-specific benchmark, but it is a realistic measure of what is “big enough to matter.” If Bitcoin’s 50% drawdown and spike in volatility could push banks’ expected CET1 ratios down by 20 basis points, the Fed has supervisory reasons to model that.

The next criterion is reproducibility. This shock needs to appear as a recurring driver of losses and liquidity stress, rather than a one-off headline.

Bitcoin’s history of sharp drawdowns often coincides with falling equities and tighter funding conditions, providing the Fed with a benchmark to adjust to. If Bitcoin behaves like a leveraged risk-on asset during stress episodes, it starts to look like other factors the Fed is already modeling.

Next, mapping to the bank’s balance sheet is done. The Fed needs a clean line of communication from Bitcoin movements to the profits and losses and liquidity of regulated companies.

Current potential channels include ETF broker-dealer intermediation, custody, risk-free principal execution, and derivative margining.

Finally, there is the auditability of the data. The Fed needs a defensible and monitorable series.

Bitcoin has an increasing number of institutional-level reference points, such as BlackRock’s IBIT, which references the CME CF Bitcoin Reference Rate. This makes Bitcoin easier to define stress scenarios than many niche credit markets.

Why do I feel different now?

Three developments in 2025 lower the barrier to bank-adjacent Bitcoin activity, making participation in future stress tests more realistic.

The Federal Reserve has rescinded its previous guidance on crypto-asset activities and moved to monitoring “normal supervisory processes.” The OCC issued guidance on custody of cryptoassets and confirmed in Interpretive Letter 1188 that national banks can conduct risk-free principal transactions of cryptoassets.

The SEC revoked Staff Accounting Bulletin 121 through SAB 122, removing an accounting treatment that was widely viewed as a custodial hurdle for banks.

ETFs currently have a bank-adjacent market structure. BlackRock’s IBIT alone reported net assets of $70.24 billion as of January 20.

Banque de France noted that authorized participants in ETFs are often broker-dealer subsidiaries of U.S. global systemically important banks, with some U.S. G-SIBs reporting more than $2.7 billion in crypto ETF investments by the end of 2024.

Authorized participants create and redeem ETF shares, hedge flows, and provide liquidity. These are regulated balance sheet based activities that can transmit Bitcoin volatility into funding and margin pressures.

The Fed is also entering an unusual transparency and comment cycle heading into 2026. A draft scenario was published and public comment was explicitly solicited. Issued separate proposals on stress testing transparency and public accountability, outlining new documentation requirements and the frequency of reviewing material model changes.

This attitude makes components of exploratory scenarios, such as testing new risks without incorporating them into binding capital requirements, more institutionally relevant than before.

What will change when Bitcoin is introduced?

Including Bitcoin in a stress test does not constitute an endorsement. This would standardize the way banks model crypto-related risks and eliminate the current patchwork of ad hoc proxies such as equity volatility and technology drawdowns.

Additionally, banks will have a common path for comparison, increasing comparability between companies.

Also, implicitly, Bitcoin will become the dominant modeled risk factor. If the Fed treats Bitcoin like interest rates or stock indexes, which can transmit stress and must be predicted under adverse conditions, it becomes difficult to dismiss crypto exposure as a fringe activity.

This change is likely to result in increased controls and compliance regarding crypto-related business lines.

Banks will treat these activities like any other capital-sensitive business. That means tighter limits, governance, model validation, documented hedging assumptions, and more detailed data collection.

The Fed already has latitude to add scenario elements based on banks’ activities and risk profiles. Bitcoin may first emerge not as a universal macro variable, but as a targeted component for banks with meaningful crypto-intermediation.

This layered structure provides a natural path forward.

How does Bitcoin fit into the stress test framework?

Over time, three implementation tiers become possible, each driven by increasing bank exposure.

Tier 1 is a Bitcoin shock in the trading book among global market shocks and is the most likely first step.

Cryptocurrency-related trading, hedging, and ETF facilitation at G-SIB broker-dealers may cause Bitcoin spot shocks, volatility shocks, basis/liquidity shocks, and increase margin and counterparty exposures. This is a component stress test of the type that stress testing already uses in other asset classes.

Historically consistent ranges can include short-term Bitcoin drawdowns of 50% to 80%, implied volatility doubling or tripling, and spikes in liquidity demand related to price differentials and margin calls.

Tier 2 treats Bitcoin as a monitored variable. This is more difficult and requires extensive bank mapping.

Banks will need to demonstrate significant and measurable Bitcoin-related P&L sensitivities over a quarter, including custody, lending to ecosystem participants, derivatives, and prime-like lending.

The Fed will need to build and test a supervisory model that translates Bitcoin’s path into losses, fee income, and liquidity stress in a repeatable manner.

Tier 3 is an exploratory scenario for Bitcoin. In times of transparency like the present, this is possible. The Fed may release an exploratory sensitivity analysis alongside the main test to examine the ripple effects of the TradFi cryptocurrency without incorporating Bitcoin into its binding capital requirements.

The current 2026 transparency stance makes this more institutionally achievable than ever before.

Governance counterweight

Banking industry groups generally argue that the Fed should maintain discretion in scenario design to ensure that transparency requirements do not distort or impact mechanical capital away from real risks.

The Fed itself has noted that adding “significant risks” through scenarios could reduce its ability to test other new risks and increase its burden.

This is the modest institutional reason why Bitcoin is not subject to stress testing until the exposure is justified. Not because the Fed is against Bitcoin, but because scenario design is a capital allocation tool that has real impact on bank behavior.

The question is not whether the Fed will “adopt Bitcoin.” The question is whether Bitcoin exposure in regulated banks will become large enough to be sufficiently incorporated into trading, custody, and intermediary activities that the Fed will no longer be able to model bank resilience without modeling a Bitcoin shock.

If that happens, Bitcoin will not participate in the stress test as a policy statement. It will come in because the Fed has run out of ways to ignore it.