U.S Senate votes to repeal SEC’s crypto custody policy – SAB 121 – but…

• United States’ Senate voted to scrap the SEC’s SAB 121 crypto custody policy 
• Crypto backers supported the move, but whether the U.S president will veto it remains to be seen

In a surprise bipartisan move on Thursday, the U.S Senate voted to repeal SEC’s controversial SAB 121 policy. The SAB 121, an acronym for Staff Accounting Bulletin 121, is a policy by the SEC that critics viewed as a deterrence to investment banks from large-scale crypto custody services. 

Interestingly, Democrats joined their Republican counterparts and successfully voted for the resolution to repeal the policy with 60-38 votes.

Here, it is worth noting that the White House had previously warned against such a move, claiming that it could constrain the SEC’s ability to protect crypto investors. The statement also said that President Joe Biden would use his veto if the need arose. 

Community reactions to SAB 121 resolution

The president’s veto threat will be the next test as the resolution will now head to his desk. Commenting on Biden’s threat, the Blockchain Association, quipped, 

“The threat of a presidential veto denies the fact that there is a growing awareness among the voting public, particularly young people, that crypto is something our elected officials should care about.”

The Association also highlighted how dire such a move could be, adding that about 48% of American voters don’t trust candidates that interfere with cryptos. 

United States’ SEC published the controversial SAB 121 guidance two years ago (March 2020). It instructed entities safeguarding crypto assets on behalf of others to include the assets in their balance sheets. 

This was contrary to traditional stocks held by the same custody entities, meaning that crypto assets would be treated differently. Apart from the need for high capital reserves to cushion against a risky balance sheet, the uncertainty from SAB 121 tipped Nasdaq and BNY Mellon to back out of crypto custody. 

Industry players have long voiced potential risks associated with Coinbase’s dominance in the crypto-custody sector. Notably, Coinbase is the custodian for 8 out of the 11 US spot BTC ETF issuers. Hence, some believe repealing SAB 121 could help mitigate the risks associated with a single-point of failure. 

Bitwise CEO Hunter Horsley had this to say when the repeal went through, 

“U.S lawmakers want to foster sensible development of crypto in the U.S. Not some lawmakers. The majority. 2024 is the beginning of the mainstream era.”