Reveal: US Securities and Exchange Commission blocks banks from holding Bitcoin and cryptocurrencies through obscure accounting rule

Reveal: US Securities and Exchange Commission blocks banks from holding Bitcoin and cryptocurrencies through obscure accounting rule

The US Securities and Exchange Commission (SEC) has issued an accounting standard called Staff Accounting Bulletin No. 121 (SAB 121), which makes it more difficult for US banks to hold Bitcoin and other cryptocurrencies. This was revealed by Castle Island Ventures partner Matt Walsh via Twitter. Walsh claims that Gary Gensler, the head of the SEC, is using this rule to turn the SEC into a performance regulator and prevent large banks from touching cryptocurrencies in the US.

SAB 121, effective March 31, 2022, affects companies that file financial information with the SEC in accordance with U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) and have a safeguarding obligation for crypto assets. The rule requires these companies to report on their balance sheets a liability and a corresponding asset in accordance with ASC 805, Business Combinations.

The regulation forces banks that offer Bitcoin custody services to treat their customers' Bitcoins as their own assets. This means they must hold more dollars as the cost of capital for the asset. This is contrary to the usual treatment of other assets by custodians.

The impact of SAB 121 is already being felt by large financial institutions. Bank of New York Mellon (BNY) has expressed dissatisfaction with the regulation in its comments to the SEC, saying it makes its crypto business unprofitable. Anchorage noted that SAB 121 appears to block BNY's custody offering and hinders reputable companies from offering services in the crypto market.

Senator Cynthia Lummis and Congressman Patrick McHenry have demanded answers in a letter to the SEC, emphasizing that this rule would prevent banks and credit unions from offering Bitcoin and crypto custody services. Even SEC Commissioner Hester Peirce herself has expressed her opposition to the guidelines.

Matt Walsh claims that this move serves Senator Elizabeth Warren's agenda, which calls for greater regulation and control of the digital asset industry. Walsh points out that Warren pushed Gensler to regulate the digital asset industry back in September 2021.

The introduction of a law on the structure of the digital asset market and a stablecoin law would provide a clear and supportive regulatory framework that promotes responsible growth while ensuring consumer protection, said Walsh.

The SEC's control over Bitcoin and crypto policy in the US raises concerns about the influence and decision-making power of unelected officials like Gary Gensler. The impact of SAB 121 on the Bitcoin and crypto industry is already being felt, hindering the growth of reputable and regulated companies. To counteract this, politicians and experts are calling for answers and a review of the regulation.