Lawmakers, influential figures in the cryptocurrency industry, and banking executives are expressing their concerns over the SEC’s policy on cryptocurrency custody and accounting. They argue that this policy is detrimental to U.S. investors and hinders innovation. However, President Joe Biden holds a different opinion.
UPDATE (June 1): Joe Biden has vetoed a SAB 121, sparking a heated debate in Washington over a controversial SEC ruling. Last week, the House of Representatives made significant progress by voting to repeal Staff Accounting Bulletin (SAB) 121.
What is SAB 121? SAB 121 is a policy that requires public companies to account for and disclose the obligations and risks associated with safeguarding customers’ cryptocurrency assets. This policy has sparked controversy due to its potential to complicate financial reporting and increase operational burdens.
These rules were implemented in 2022 and have faced strong criticism from the cryptocurrency industry and banks, who argue that these measures have effectively prevented them from offering digital asset services.
On May 16, the U.S. Senate voted to overturn the SEC guidelines, but critics of SAB 121 still face challenges. The Senate ruling still requires presidential approval, and President Joe Biden has made it clear that he is willing to veto the resolution to completely scrap SAB 121. The White House issued a statement expressing the administration’s support for SAB 121, stating:
“Some Democratic lawmakers have been urging SEC chair Gary Gensler to withdraw SAB 121 voluntarily, rather than waiting for Congress to take action. Congressman Wiley Nickel, representing North Carolina’s 13th District, is one of them. He expresses confidence that Joint Resolution 109 will pass the Senate.
Nickel argues that getting rid of SAB 121 would provide better protection for investors and ensure that the U.S. remains competitive on a global scale. Banks with a proven track record in providing fiat custody services would be able to expand their offerings to include cryptocurrency. Critics argue that regulations like SAB 121 were ineffective from the start, as crypto projects such as Voyager and Celsius failed to protect customer assets even after the policy was enforced.
In a letter to Gensler, Congressman Nickel stated:
Nickel warns Gensler that SAB 121 imposes a “prohibitively expensive regulatory burden” and leaves U.S. consumers with no choice but to rely on “riskier offshore custody solutions.” He also criticizes the SEC’s approach to digital assets as “misguided” and raises concerns about how SAB 121 was enforced. He accuses the commission of a “breach of the rulemaking process” by using a staff accounting bulletin to enact new policies, when these bulletins are traditionally meant to serve as guidelines for best practices.
Austin Campbell, the founder of Zero Knowledge Consulting, describes SAB 121 as “insanity.” He criticizes the policy for being unilaterally adopted without consultation and for damaging the rights of cryptocurrency holders in bankruptcy cases. Campbell expressed his views on social media, stating:
He further warns that major financial institutions strongly dislike SAB 121 because it prevents them from participating in the growing demand for exchange-traded funds based on Bitcoin’s spot price.
Charles Hoskinson, the founder of Cardano, also criticizes Biden’s stance on digital assets, claiming that his administration is trying to destroy the U.S. crypto sector. He argues that it is inappropriate for the SEC to regulate cryptocurrency using 90-year-old legislation and that the heavy-handed approach to regulation has already pushed legitimate exchanges and trading platforms to relocate, benefiting rival economies through job creation and tax revenues.
With a looming veto, this saga is far from over. It will be interesting to see how lawmakers on Capitol Hill, as well as industry leaders in traditional finance and the cryptocurrency space, respond.
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