The U.S. House of Representatives took a major step toward changing digital asset regulations by passing a bipartisan resolution, H.J.Res. 109, introduced by Representative Mike Flood on May 8. This resolution aims to overturn the controversial Staff Accounting Bulletin (SAB) 121 from the Securities and Exchange Commission (SEC), which has been a hot topic in the financial and crypto communities.

Next, the U.S. Senate followed suit, voting to pass H.J. Res 109. However, a potential Biden veto could overturn the Senate’s decision.

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Supporters of H.J.Res. 109 believe that repealing SAB 121 will remove regulatory hurdles, leading to safer and more efficient digital asset operations through regulated banks and financial institutions. Congressman Patrick McHenry highlighted the practical implications of SAB 121.

If you want American assets to be protected, they should be held in custody, not on a bank’s balance sheet. […] And finally, if you want to send a clear message that fraudulent regulators can’t bypass Congress in our established rulemaking process, vote ‘yes’.

Congressman Patrick McHenry

Why is SAB 121 Dangerous for Cryptocurrency Firms?

Introduced in March 2022, SAB 121 requires financial institutions to include customers’ digital assets on their balance sheets. Critics argue that this mandate creates a significant operational and financial burden for cryptocurrency firms. This policy has faced opposition due to the potential risks it poses to customers’ assets in bankruptcy situations.

Senator Cynthia Lummis, a fervent supporter of cryptocurrencies, spearheaded the resolution’s adoption. During hearings, she highlighted the dangers of SAB 121, explaining that placing customers’ assets on institutional balance sheets could jeopardize these assets during bankruptcies.

SAB 121 exposes consumers to risk by requiring insured institutions to place consumer assets on their balance sheets. This gives creditors the opportunity to claim these assets in the event of bankruptcy. We’ve seen how this impacts consumers. Their assets are frozen for months or even years during bankruptcy proceedings. In some cases, they lose their assets entirely. Now, they’ve entrusted these assets to a custodian, and it’s the custodian that goes bankrupt. Yet, their assets are the ones at risk. This doesn’t protect consumers at all.

Senator Lummis

After the vote, Lummis took to social media to express her satisfaction. She called the Senate’s decision a victory for financial innovation and a rebuke to the current administration’s approach to cryptocurrency regulation.

Despite the resolution’s success in Congress, it didn’t secure enough votes to override a veto. President Joe Biden has pledged to veto the resolution, with his administration arguing that repealing SAB 121 would weaken the SEC’s ability to protect investors and the financial system from cryptocurrency-related risks.

The Crypto Community Cheers, But It’s Not All Smooth 

The crypto community celebrated the Senate’s decision. Michael Saylor, founder of MicroStrategy and a well-known Bitcoin advocate, shared his excitement on X, emphasizing Bitcoin’s growing support.

Wall Street wants Bitcoin, the House wants Bitcoin, and now the Senate wants Bitcoin.

However, the Biden administration has recently tightened its regulatory stance on the crypto industry. In response, industry leaders are rallying support for political candidates who advocate for cryptocurrency.

Representative Mike Flood, who authored the resolution, continues to urge the president to reconsider his position:

The president should sign my resolution to ensure the SEC changes course and puts America on the path to developing our digital financial future.

Will President Biden sign the resolution, marking a significant regulatory shift? Or will his veto keep SAB 121 intact, maintaining the status quo and forcing cryptocurrency companies to face regulatory burdens?

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