U.S. Senator Cynthia Lummis, a consistent supporter of bitcoin.
(Full disclosure: I’m helping build Coinbits.app, a bitcoin banking platform.)
In a move that may turn out to be a watershed moment for digital assets in the U.S., both the House of Representatives and the Senate have voted to overturn a Securities and Exchange Commission (SEC) regulation known as Staff Accounting Bulletin No. 121 (SAB 121). The vote marks a pivot in how bitcoin might be treated by lawmakers and regulators – and will likely increase the availability of bitcoin-based financial services in the United States.
SAB 121, issued by the SEC in 2022, mandated that companies holding customers' cryptocurrencies must treat these assets as liabilities, requiring them to be recorded at fair value on their balance sheets. This policy indirectly imposed heavy capital requirements on banks that wanted to offer cryptocurrency services, effectively stymieing the banking sector’s ability to serve this market. Critics argued that this rule was not only onerous but fundamentally misunderstood the custodial nature of banks' holding digital assets, treating them as liabilities rather than as property belonging to customers.
The recent legislative action to overturn SAB 121 is a resounding statement against what many saw as an undue regulatory overreach that hampered the ability of banks to do business in the modern economy. The vote in the Senate was particularly telling, with a decisive 60-38 tally that included bipartisan support.
The move to overturn SAB 121 has showcased an interesting dynamic in U.S. politics. With 21 Democrats joining Republicans in the House, and notable Democratic senators siding with the repeal in the Senate, there's a clear indication of shifting tides. Lawmakers were likely drawn to this issue by a combination of recently having improved their understanding the technology and economic implications of bitcoin, as well as recognition that the SEC has been operating beyond its mandate.
Moreover, the votes of high-profile lawmakers, including Senate Majority Leader Chuck Schumer, adds a layer of political intrigue. It indicates potential conflicts in how members of the Democratic Party view digital assets – for the contrary view, look no further than Senator Elizabeth Warren, who has made hostility to crypto central to her political identity. This divergence could redefine party stances on tech and finance moving forward, setting the stage for more nuanced debate.
Interestingly, the traditional banking sector played a pivotal role in advocating against SAB 121. Major banks and financial institutions, witnessing the lucrative bitcoin offerings of firms like Fidelity, Blackrock, and Coinbase, recognized the once-in-a-generation opportunity to innovate and experiment with new business models for banks.
The looming decision by President Biden—whether to sign or veto the overturn—will be a significant moment. A veto could set up a contentious scenario, potentially pitting the president against leaders in his own party. However, if he signs it, it could herald a new era of bipartisan acceptance that bitcoin represents an opportunity to build the future of finance within the United States.
Additionally, the successful challenge to SAB 121 by the crypto industry and its allies in the banking sector illustrates the growing influence and maturation of a new force in U.S. politics. It demonstrates that traditional finance and digital asset innovators are not always at odds, and have found common interests. They have also shown that they can mobilize support and effect change at the highest levels of government. The bitcoin lobby is now a permanent player on the political stage.
The crypto industry's relationship with U.S. regulators and lawmakers will continue to evolve, and there will be both victories and setbacks. However, the overturn of SAB 121 may mark a significant departure from business as usual when it comes to regulating the nascent cryptocurrency industry in the United States.
