[{"category":{"name":"BitScreener Exclusive","exported_url":"bitscreener-exclusive"},"id":"10d717f2-dc98-4713-a2f2-8e50df55b057","updated_at":"2024-05-17T04:48:18.802+00:00","account":{"firstName":"Marigold","lastName":"Vance"},"description":"The US Securities and Exchange Commission (SEC) rule that makes it prohibitive for regulated financial firms to offer Bitcoin and other cryptocurrencies, which is known as H.J.Res. 109, has been officially overturned by the US Senate.","sapo":"Despite the fact that the bill was approved by the Senate, its fate remains unknown as President Joe Biden has threatened to veto it.","title":"U.S Senate overturns SEC Rule prohibiting Bitcoin and crypto custody: Will Biden veto the resolution?","content":"

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The past few years has witnessed a contentious relationship between the digital asset market and the SEC due to the SEC's commitment to enforcement of regulations. As a consequence, numerous legal battles and ongoing lawsuits have been ignited within the industry.

Bipartisan support for the overturn

On May 16, the Senate passed a joint resolution - H.J.Res. 109 - to repeal the SEC's Staff Accounting Bulletin (SAB) No. 121. Having been in effect for two years ever since its induction, the commissions’ rule bans highly regulated financial firms from holding Bitcoin and other cryptocurrencies, forcing banks to hold capital maintained against their clients' digital assets on their balance sheets. Such measure has been denounced as stifling innovation by many politicians and industry leaders. The vote, counting 60 to 38 in the Senate and encompassing the Democrat Senate majority leader Chuck Schumer voting in favor, approves the reversal of SAB No. 121, yet it also implies bipartisan support for the measure.

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Threatened presidential veto

Before the resolution passed the U.S. House of Representatives with a 228-182 vote on May 8th. The bill now sits on President Joe Biden's desk awaiting his approval. Reports suggest that the White House may veto the measure, despite the widespread dissatisfaction with the SEC rule among policymakers in both the House and Senate.

The resolution, previously passed by the U.S. House of Representatives, seeks to dismantle SAB 121, which imposes strict limitations on financial institutions from acting as custodians for digital assets like Bitcoin. Through the Congressional Review Act, H.J.Res. 109 intends to eliminate these restrictions, allowing regulated firms to offer custody services for Bitcoin and other digital currencies.

Unfortunately, the White House has made its stance clear regarding this legislation, stating its intent to veto the bill. President Joe Biden acknowledged his intent to “protect investors in crypto-asset markets and to safeguard the broader financial system.” In the event that President Joe Biden vetoes the legislation, it will return to Congress and require a two-thirds majority vote to pass again.

President Joe Biden's statement to veto the legislation

Source: President Joe Biden's statement to veto the legislation

Rationales for the overturn

The vote exhibited an atypical bipartisan move by the U.S. Senate. According to Senator Cynthia Lummis, it was the first time this session of Congress passed “standalone crypto legislation.” On the one hand, advocates of H.J.Res. 109 argue that removing SAB 121 has an essential role to play concerning consumer protection, particularly with the earlier approval of spot Bitcoin ETFs by the SEC. There are centralization risks with these bitcoins as only a small number of institutions are holding the majority. Thus, in an effort to allay worries about centralization, H.J.Res. 109 aims to lower obstacles so that more strictly regulated organizations may accept custody of and keep bitcoin on behalf of clients.

On the other hand, SAB 121 regulation is criticized as being unduly restrictive and impeding financial institutions' capacity to gratify the expanding market for Bitcoin services. They believe regulated institutions can address custody risks effectively with their compliance frameworks and security measures.

Conflicting opinions

Senator Cynthia Lummis has expressed support for overturning SAB 121, highlighting: “SAB 121 is a rule under the administrative procedure act, disguised as an accounting guidance. It was published by the SEC staff without the approval of the majority of the commission.” She also urged her support on X, writing that the overturning of SAB 121 is “a win for financial innovation and a clear rebuke of the way the Biden administration and Gary Gensler have persecuted crypto”.

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On the contrary, Senator Elizabeth Warren highlighted concerns about digital asset security and urged the Senate to align with President Biden by voting against the resolution. She argued the entire difference in asset class compared to what banks and other regulated financial institutions are used to. Moreover, she believed that due to the online characteristics of these digital assets, they are vulnerable to being hacked.

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Future of the resolution

Although the Senate's decision is in favor of H.J.Res. 109, the bill's future is still uncertain due to the potential veto from the U.S President. If President Biden follows through, the resolution could face roadblocks, preserving the current state regarding digital asset custody by financial institutions. Biden has the choice to sign, veto, or take no action on the bill, which would then become law.

In the meantime, there is also something that we can learn from this incident. The joint resolution could be a bellwether for a different crypto bill, the Financial Innovation and Technology for the 21st Century Act. Besides, according to the Blockchain Association, “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”.

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U.S Senate overturns SEC Rule prohibiting Bitcoin and crypto custody: Will Biden veto the resolution?

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