Crypto Just Had A Game-Changing Moment, But Will Biden Veto?

As a researcher with a background in financial technology and digital assets, I believe yesterday’s Senate vote to repeal SAB 121 is a significant turning point for the crypto sector. The bipartisan support for this bill indicates a growing recognition of the importance of striking a balance between investor protection and fostering innovation within the crypto industry.

In a significant development for the crypto industry, the US Senate passed H.J. Res 129 on May 16 with strong bipartisan backing, aiming to reverse SEC’s Staff Accounting Bulletin (SAB) No. 121. The bill received a vote of 60-38 in the Senate and previously gained approval from the House.

In 2022, SAB 121 was introduced, making it mandatory for digital asset custodians to record customer-held digital assets as liabilities on their financial statements. This requirement has sparked significant opposition within the crypto community. The critics argue that this regulation unjustly considers customers’ digital assets as the custodian’s liabilities, leading to the need for cash equivalents as a counterbalance.

Why Yesterday’s Vote Is A Game-Changer For Crypto

Avichal Garg, Co-Founder and General Partner at Electric Capital, voiced industry discontent, remarking, “Banks must keep $1 billion in cash to match every $1 billion of Bitcoin they safeguard for clients on their balance sheets. The funds do not belong to the institution; they are the customers’. Garg further argued that the Securities and Exchange Act (SAB) 121 was enacted with the intention of preventing banks from participating in crypto markets, a stance he believes undermines consumer protection.

The Senate’s recent decision on crypto regulation marks a pivotal moment, with far-reaching implications for both the industry and political stances on financial technology. Notably, this shift saw 21 Democratic senators deviate from their traditional positions, influenced by Senator Elizabeth Warren’s strong advocacy for stringent financial and tech regulations. This departure indicates a potential realignment within the Democratic Party, hinting at a broader centrist trend regarding market regulations.

The vote by Senate Majority Leader Chuck Schumer in support of scrapping SAB 121 holds significant importance, indicating robust approval among Congress for the cryptocurrency industry amidst President Biden’s potential veto.

“I, Matt Hougan, Chief Investment Officer at Bitwise, view this event as pivotal for the crypto industry. It represents a turning point that will likely lead to new record highs for crypto prices as investors absorb and adjust to the significant developments that have transpired here.”

Enhancing the political intrigue, Perianne Boring, Founder and CEO of The Chamber of Digital Commerce, emphasized Senator Schumer’s potential impact on the President’s decision: “Schumer holds significant sway. He could likely persuade the President to sign off on this.”

As a crypto investor, I’m thrilled about Jake Chervinsky’s recent commentary on the Senate’s decision to repeal SAB 121. In simpler terms, this means that the Senate has taken a strong stance against what they see as excessive regulation by the Securities and Exchange Commission (SEC). Chervity, the Chief Legal Officer at Variant Fund, emphasized the significance of Majority Leader Schumer’s vote to override President Biden’s threatened veto. This event sends a clear message that both parties are in favor of reasonable regulations and against potential SEC overreach.

What Will President Biden Do?

The President now has the bill on his desk, intending to veto it in agreement with Senator Warren and SEC Chair Gary Gensler’s stance that the SEC’s guidelines are essential for safeguarding investors in unpredictable crypto markets. Eleanor Terrett of FOX Business brought up the President’s predicament, stating, “Biden now has ten days to either veto, approve, or take no action. Failing to act would result in the bill becoming law without his signature.”

The crypto sector is holding its breath in anticipation of the President’s announcement. If he vetoes the bill, the current regulatory landscape would remain unchanged, potentially discouraging larger investors due to perceived risks. On the other hand, signing or allowing the bill to become law without a signature could lead to a more permissive regulatory environment, attracting greater institutional involvement and potentially sparking a new wave of growth and innovation in the crypto market.

As the deadline nears, the decision on regulating digital asset custody will not only set the rules but also indicate the administration’s overall attitude towards fintech innovation and regulation.