SEC officially abolishes the accounting evil law 'SAB 121' to eliminate institutional custody obstacles for Crypto Assets

The US Securities and Exchange Commission (SEC) announced today the abolition of Staff Accounting Bulletin No. 121, which the industry viewed as a malignant accounting rule that hindered banks from custodying Crypto Assets. This marks a key step by the Trump administration and the new leadership of the SEC in relaxing regulations on Crypto Assets. (Background: Trump signed an encryption-friendly executive order: evaluating BTC strategic reserves, prohibiting issuance of CBDC, establishing a new regulatory framework...) (Additional context: SEC established a "Cryptocurrency Working Group" led by encryption advocate Hester Peirce: developing a clear regulatory framework.) Today (24th), the US Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 122, announcing the abolition of SAB No. 121, a rule protested by the industry as a malignant accounting rule that prevented banks from custodying Crypto Assets. This move not only signifies a major victory for the encryption industry but also represents a significant shift in the SEC's regulatory approach towards Crypto Assets under the leadership of "encryption advocate" Hester Peirce, the head of the newly established Cryptocurrency Working Group. Under the revised framework, companies can now use broader accounting standards, such as the US Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS), to assess the obligation to custody encryption assets. Regarding the SEC's decision to abolish the SAB 121 rule, Peirce also bid farewell to SAB 121 on platform X today, saying, "This is not fun." Bye, bye SAB 121! It's not been fun: | Staff Accounting Bulletin No. 122 — Hester Peirce (@HesterPeirce) January 23, 2025 Why was SAB 121 considered a malicious accounting law for encryption? SAB 121 was an accounting rule issued by the SEC under the hawkish former chairman Gary Gensler in March 2022 regarding the custody and recognition of Crypto Assets, requiring custodian institutions of digital assets to treat the digital assets they hold as liabilities and calculate them at fair value on the balance sheet. This provision means that if a bank custodies BTC worth $1 billion on behalf of clients, it must hold $1 billion in cash to offset this "liability" on the balance sheet. This could result in significant capital outflows for banks and institutions, leading to higher capital requirements and raising concerns among the industry and some legislators that the rule would deter banks from custoding Crypto Assets, thereby reducing investor protection. SAB 121 was once overturned by votes in both houses last year, but after former President Biden exercised his veto power, the House ultimately failed to meet the threshold to overturn the president's veto decision, ending Congress's efforts to repeal the rule in failure. However, with Trump returning to the White House this month and Gary Gensler stepping down, the SEC under the leadership of encryption-friendly acting chairman Mark Uyeda and encryption advocate Hester Peirce formally consigned SAB 121 to history today. This move may also greatly increase the interest of banks and institutions in entering the field of Crypto Asset custody and adoption. Trump's introduction of the Cryptocurrency executive order The SEC's order on Friday was also supported by Cynthia Lummis, chair of the Senate Banking Committee's Digital Assets Subcommittee, who proposed the BTC Strategic Reserves Act, who tweeted this morning: SAB 121 was disastrous for the banking industry and would only hinder digital asset innovation and progress in the United States. I am pleased to see it abolished and the SEC back on track to fulfill its intended mission. It is worth noting that on the same day, Trump released a major reform of Cryptocurrency regulation, signing the first executive order in support of Crypto Assets, announcing the establishment of the President's Digital Assets Market Working Group to develop a federal regulatory framework for digital assets (including stablecoins) and evaluate the possibility of establishing a national digital asset strategic reserve. The Cryptocurrency industry and banking institutions are equally pleased with Trump's signing of the encryption executive order and the SEC's latest decision to abolish SAB 121, with Nathan McCauley, CEO of Anchorage Digital, a digital asset bank, telling Reuters: "Today's Cryptocurrency executive order marks a huge change in US digital asset policy." By taking a comprehensive government approach to Crypto Assets, the government is taking an important first step towards establishing clear, consistent regulatory rules.