Controversial SEC Crypto Asset Accounting Rule Strongly Opposed By US Senate

Key Points:

• The U.S. Senate voted 60-38 to overturn the SEC crypto asset accounting rule, easing restrictions on banks holding cryptocurrencies.
• The legislation, passed by the House, could be vetoed by President Biden, who argues that it could harm investor protections.
• The resolution, backed by both parties, seeks to enable regulated institutions to offer crypto custody services.

The U.S. Senate has passed a bill to overturn the SEC’s Notice 121 (SAB 121), which requires companies to record crypto assets on their balance sheets, making it costly for financial institutions to hold cryptocurrencies.

Senate Votes to Overturn SEC Crypto Asset Accounting Rule

The legislation passed with a 60-38 vote aims to reverse this rule, enabling banks to act as custodians for digital assets like Bitcoin. The House approved the bill last week, and it now awaits President Biden‘s decision.

SEC crypto asset accounting rule forces banks to label crypto assets held for clients as liabilities, which has deterred institutions from participating in crypto custody.

The Congressional resolution, H.J.Res. 109, seeks to eliminate these barriers, facilitating highly regulated firms to offer custody services for Bitcoin and other cryptocurrencies. Proponents argue this move is essential for consumer protection and to decentralize the custody of Bitcoin, which is currently concentrated among a few institutions.

Bipartisan Effort Aims to Ease Crypto Custody Restrictions

Senator Cynthia Lummis, a vocal supporter, sees the bill’s passage as a shift towards a more crypto-friendly regulatory environment. She criticized the SEC crypto asset accounting rule as an administrative overreach, not properly sanctioned by the SEC‘s commissioners. Conversely, Senator Elizabeth Warren warned against the bill, citing the unique risks of digital assets, such as their susceptibility to hacking, as evidenced by breaches at exchanges like Binance and FTX.

The White House has indicated a potential veto, arguing that overturning the SEC crypto asset accounting rule would hinder the SEC’s ability to protect investors and the financial system. Despite this, the bill’s bipartisan support in Congress, with some Democrats joining the predominantly Republican effort, underscores the contentious nature of crypto regulation.