Regulation
Crypto has just experienced a game-changing moment, but will Biden veto it?
In a potentially game-changing moment for the crypto industry, the US Senate passed HJ Res 109, a bill to overturn the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) No. 121 on Thursday May 16. The bill passed with substantial bipartisan support, receiving a 60-38 vote in the Senate and pre-approval in the House.
SAB 121, implemented in 2022, required digital asset custodians to list digital assets as liabilities on their balance sheet, a requirement widely criticized within the crypto community. Critics argue that this regulation unfairly treats customer-owned digital assets as liabilities of the custodian, thereby requiring equivalent liquidity reserves to offset these “liabilities.”
Why yesterday’s vote is a game changer for crypto
Avical Garg, co-founder and general partner at Electric Capital, Express The industry’s frustration, stating: “If a bank keeps $1 billion in Bitcoin for its customers, it must hold $1 billion in cash to offset this ‘liability’ on its balance sheet. The assets do not belong to the company. These are the customers. Garg also suggested that SAB 121 was designed to keep banks away from crypto markets, which he sees as detrimental to consumer protection.
The Senate’s decision represents a critical moment not only for crypto regulation, but also for policy alignments regarding financial technology. The vote notably saw 21 Democrats break from their usual position under the influence of Senator Elizabeth Warren, who has been a strong advocate for strict financial and technology regulation. This shift suggests a significant political realignment, potentially indicative of a broader centrist movement within the Democratic Party on market regulation.
Senate Majority Leader Chuck Schumer’s vote to repeal SAB 121 carries considerable weight, signaling strong congressional support for the cryptocurrency sector amid President Biden’s veto threat .
Matt Hougan, Chief Investment Officer at Bitwise, describe the moment as transformative for the industry: “This is a game-changing moment for crypto. This is one of the catalysts that will propel crypto to new all-time highs as the market digests the sea change that has occurred here.
Further highlighting the political drama, Perianne Boring, founder and CEO of the Digital Chamber of Commerce, underlines Senator Schumer’s potential influence on the president’s decision: “If anyone can convince POTUS to sign, it’s Schumer. We have a very real chance of crossing the finish line.
Jake Chervinsky, legal director of Variant Fund, also commented on the implications of the vote, saying: “The Senate has just delivered a deafening bipartisan message in favor of common sense and against the excesses of the SEC. It is impossible to overstate the importance of Majority Leader Schumer voting to repeal SAB 121 rather than the President. Biden’s veto threat.”
What will President Biden do?
The resolution is now on President Biden’s desk, as he has expressed his intention to veto it, thereby aligning with Senator Warren and SEC Chairman Gary Gensler’s view that SEC guidance is crucial to protecting investors in volatile crypto markets. Eleanor Terrett of FOX Business highlighted the president’s dilemma: noting“Biden now has 10 days to veto, sign or do nothing. Doing nothing would mean it would go into effect without signing.
The crypto industry remains nervous while awaiting the president’s decision. A veto would maintain the status quo, potentially stifling further institutional participation in the crypto market due to perceived regulatory risks. Conversely, the decision to sign or allow the bill to pass without signature could significantly liberalize the regulatory environment, encouraging more substantial institutional engagement and possibly catalyzing a new phase of market growth and innovation .
As the deadline approaches, the decision will not only determine the regulatory framework for digital asset custody, but also signal the administration’s broader stance toward innovation and regulation in the tech sector financial.
At press time, Bitcoin was trading at $65,565.
Featured image from Vox, chart from TradingView.com