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Does the SAB 121 vote mean anything for future cryptocurrency legislation?
The US Senate has joined the House of Representatives in voting to repeal a controversial US Securities and Exchange Commission (SEC) accounting rule that imposed onerous capital requirements on cryptocurrency custodians. This is a big deal, considering that the so-called Staff Accounting Bulletin, aka SAB 121, was one of the few things the cryptocurrency and banking industries aligned in opposing.
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Unfortunately, however, the legislative measure is now on the desk of President Joseph Biden, who has promised to veto it in solidarity with the SEC. Although a number of high-profile Democrats, including New York Sen. Chuck Schumer, voted in favor of overturning the bulletin, Thursday’s 60-38 Senate vote failed to clear the threshold to override the presidential veto.
It’s difficult to read the tea leaves of the vote, which almost suggests some sort of realignment among lawmakers willing to pass decent crypto regulations (or at least repeal the bad ones). On the other hand, there are a number of reasons why it would make sense to abandon SAB 121, not the least of which is that the nonpartisan Government Accountability Office found that the SEC forced it without adequate congressional oversight.
Of course, Senator Elizabeth Warren, perennially hostile to cryptocurrencies, voted in favor of keeping the rule, arguing that “The unique risks of cryptocurrencies can create liabilities that seriously affect a company’s financial condition. SAB 121 simply clarifies how companies should account for such risks in their financial disclosures. However, is bipartisan support a good sign for other legislative efforts, such as the stablecoin and market structure bill under consideration?
“Sorry to be a negative here, but I don’t think D’s support for overturning the crypto accounting rule means there won’t be a veto. I think the anti-SBA vote 121 was cast because they knew the White House would have vetoed. It’s the cart, not the horse,” James Wester, director of cryptocurrencies and co-head of payments at Javelin, said on X. Apparently it’s easier to vote for something you know will ultimately lead to a showdown?
Meanwhile, Austin Campbell, an associate professor at Columbia Business School, said Thursday’s vote shows that cryptocurrencies are bipartisan. “This is an American issue, not a partisan one,” he said She said.
In any case, it is worrying how precarious cryptocurrency legislation is. A rule in which two pluralities vote, which is widely criticized by operators in the sector and has even been recalled “idiot” by experienced players like Nadine Chakar, often called one of the most important women in finance who helped found State Street Digital and who now runs DTCC’s crypto unit (and who speaks at Consensus 2024), will likely remain in place.
This isn’t just a purely academic question either, because SAB 121 – while technically “non-binding” – is already having an effect on the ability of financial institutions to enter the cryptocurrency custody industry, according to an open letter signed by the Bank Policy Institute (BPI), the American Bankers Association (ABA), the Financial Services Forum (FSF), and the Securities Industry and Financial Markets Association (SIFMA) in February.
I mean, this is a bit counterfactual, but how advanced would industries like stablecoins and interbank blockchains be if clear regulations had been written years ago? It seems trivially true that regulatory uncertainty (and, more recently, hostility) has prevented companies from experimenting with cryptocurrencies. For example, surely some large custodians would be interested in holding all that ETF bitcoin, like Fortune’s Jeff John Roberts he wrote recently.
It’s interesting that 12 Senate Democrats could come together to help vote on a harmful bill, but I’m not sure the story of SAB 121 is really that encouraging.