The Senate approved a bill called H.J.Res. 109 that would reverse the SEC’s Staff Accounting Bulletin (SAB) No. 121, which currently prevents heavily regulated financial institutions from acting as custodians for Bitcoin and other cryptocurrencies.
This bipartisan legislation received a vote of 60 to 38, showcasing widespread support for the measure.
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Already passed by the House last week, the resolution’s objective is to dismantle SAB 121. This bulletin imposes strict limitations on financial establishments, effectively prohibiting them from offering custody services for digital assets like Bitcoin.
Through the Congressional Review Act, H.J.Res. 109 aims to eliminate these obstacles, thus allowing highly regulated financial firms to provide custody solutions for Bitcoin and other cryptocurrencies.
BREAKING: 🇺🇸 Legislation that would overturn SEC rule preventing highly regulated financial firms from custodying #Bitcoin and crypto PASSES the Senate. pic.twitter.com/GDyJRCMCxy
— Bitcoin Magazine (@BitcoinMagazine) May 16, 2024
However, the White House has taken a firm stance against this legislation. In a recent statement, it was emphasized that if the bill were to reach President Biden’s desk, he would veto it.
The administration argues that overturning SAB 121 would “interrupt the SEC’s efforts to safeguard investors in crypto-asset markets and protect the broader financial system.”
Advocates of H.J.Res. 109, on the other hand, contend that the reversal of SAB 121 is essential for safeguarding consumers in the United States. This viewpoint largely stems from the recent approval of a series of Bitcoin Exchange Traded Funds (ETFs) by the SEC for trading.
The majority of these bitcoins are presently held by a small number of institutions, which gives rise to concerns about centralization. H.J.Res. 109 aims to eliminate barriers that prevent more highly regulated institutions from acting as custodians and holding bitcoin on behalf of customers, thereby addressing any apprehensions about centralization.
Detractors of the SEC’s SAB 121 maintain that the rule is excessively restrictive and impedes financial institutions’ ability to meet the increasing demand for Bitcoin services.
They contend that regulated institutions possess the necessary capabilities to manage the risks linked with digital asset custody, citing their current compliance frameworks and security protocols as sufficient safeguards.
Senator Cynthia Lummis, a strong supporter of Bitcoin, expressed her endorsement earlier today, highlighting:
SAB 21 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.
Senator Cynthia Lummis
In contrast, Senator Elizabeth Warren urged the Senate to align with Joe Biden by voting against the reversal. She argued that digital assets belong to an entirely different asset class than what banks and other regulated financial institutions are familiar with.
According to her, these assets are not tangible objects that can be physically stored in a bank vault; they exist solely online, making them vulnerable to hacking. To support her argument, she pointed out the past hacks of crypto exchanges Binance and FTX.
JUST IN: 🇺🇸 US Senator Cynthia Lummis urges the Senate to vote YES on legislation that would allow highly regulated financial firms to custody #Bitcoin and crypto.
She also stated "The safest place for digital assets is in a self hosted wallet." 👏 pic.twitter.com/5WnGHZSNP3
— Bitcoin Magazine (@BitcoinMagazine) May 16, 2024
Furthermore, despite receiving approval from the Senate, the future of H.J.Res. 109 remains uncertain due to the potential veto by the President.
Should President Biden fulfill his promise, it would impede the progress of the resolution, effectively maintaining the current state of affairs regarding the custody of digital assets by financial institutions.
JUST IN: 🇺🇸 US Senator Elizabeth Warren urges the Senate to vote NO on legislation that would allow highly regulated financial firms to custody #Bitcoin and crypto. pic.twitter.com/L6NwEVUseN
— Bitcoin Magazine (@BitcoinMagazine) May 16, 2024
President Biden has several options at his disposal: he can either sign the bill into law, veto it, or opt for inaction. In the event that he chooses to take no action, the bill would automatically become law without his signature.
Eleanor Terrett, a journalist from Fox Business, provided her insights on the matter, stating that the Senate has voted to overturn SAB 121, which means that it now heads to the President who previously indicated his intention to veto it.
If this occurs, they will be starting over with the House and Senate, requiring a two-thirds majority vote in both chambers to override the veto.
The road ahead
The repeal of SAB 121 by the US Senate has opened up a new chapter in the regulatory landscape for Bitcoin and cryptocurrencies, leaving the future of custodial services by financial institutions uncertain as they await President Biden’s decision.
This significant milestone could potentially lead to an increase in mainstream acceptance and investor confidence if the legislation is signed into law.
It could also be potentially paving the way for more financial institutions to offer custodial services and further boost investor confidence.
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