US banks are urging the SEC to make important changes to cryptocurrency regulations after the exclusion of the spot Bitcoin ETF.

Julia Smith Last updated: February 16, 2024 15:01 EST | 2 min read

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U.S. Banks Push for Changes to SEC’s SAB 121: A Battle for Asset Custodianship for Spot-Bitcoin ETFs 😲

Cryptocurrency enthusiasts might often argue that banks are slow to adapt and hesitant to enter the digital assets space. However, a recent development suggests otherwise. United States banks are now pushing for the United States Securities and Exchange Commission (SEC) to change its controversial Staff Accounting Bulletin 121 (SAB 121) regulations 😮. But what exactly is SAB 121 and why are banks so keen to have it modified? Let’s dive in!

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Battling SAB 121: Why U.S. Banks Are Not Happy 😠

The recently formed trade group coalition, consisting of the American Bankers Association, the Financial Services Forum, the Bank Policy Institute, and the Securities Industry and Financial Markets Association, has voiced their concerns about SAB 121. In a letter addressed to the SEC, they argued that the current regulations prevent banks from serving as asset custodians for spot-Bitcoin exchange-traded funds (ETFs). 😱

According to the coalition’s letter, excluding banks from providing custodial services for spot-Bitcoin ETFs poses “important questions about the safety and stability of this ecosystem.” 🤔 The letter further warned that concentration risk could arise, as a single nonbank entity would become the custodian for the majority of these ETFs. To mitigate this risk, the trade group coalition proposes that prudentially regulated banking organizations should have the same ability as qualified nonbank asset custodians to offer custodial services for Commission regulated ETFs.

Redefining Crypto-Assets: The Need for Change 🔄

The coalition didn’t stop at fighting for banks’ custodial roles. They also raised concerns about the SEC’s current definition of crypto-assets. They argued that the definition should be modified to exclude certain use cases, such as spot-Bitcoin ETFs and tokenized deposits, if approved. 📝

In their letter, the coalition criticized Staff Accounting Bulletin 121 for not distinguishing between asset types and use cases. They emphasized that there are significant differences between cryptocurrencies like Bitcoin that exist on public, permissionless networks, and traditional financial instruments recorded on a blockchain network with controlled access and the ability to cancel, correct, or amend transactions. 👀

Reactions from the Crypto Space: United They Stand 🚀

Once news of the letter’s publication broke, key players in the crypto space couldn’t contain their thoughts on the matter. BitWise Invest CEO, Matt Hougan, emphatically tweeted, “If you were wondering if bitcoin ETFs were going to change the tone around crypto regulation in Washington, here’s your answer.” 📣

Bloomberg’s Senior ETF analyst, Eric Balchunas, also chimed in by posting, “They want a piece of the action. I don’t blame them, it isn’t fair.” The voices within the crypto space are united in acknowledging the significance of U.S. banks’ push for involvement in digital asset custody. 💪

The Ripple Effect of U.S. Banks’ Involvement 💼

If the SEC heeds the coalition’s demands and makes the requested modifications, U.S. banks would have a significantly greater role in handling digital assets. The coalition argues that if regulated banking organizations are precluded from providing digital asset safeguarding services at scale, it will have negative consequences for investors, customers, and ultimately, the financial system. They believe that limiting custody providers to those outside of federally-regulated banking organizations would deprive customers of vital legal and supervisory protections. We can expect a heated debate on this matter in the coming months. 🔥

Q&A: Addressing Your Concerns 💡

Q: What is SAB 121, and why is it controversial?

A: SAB 121 refers to the Staff Accounting Bulletin 121 regulations set by the SEC. These regulations prevent banks from acting as asset custodians for spot-Bitcoin ETFs, which has sparked controversy within the banking industry.

Q: Why do U.S. banks want SAB 121 to be changed?

A: U.S. banks want SAB 121 modified to allow them to serve as custodians for spot-Bitcoin ETFs. They argue that excluding banks from this role raises concerns about the safety and stability of the ecosystem.

Q: What changes does the trade group coalition propose?

A: The coalition suggests that prudentially regulated banking organizations should have the same ability as qualified nonbank asset custodians to provide custodial services for Commission regulated ETFs.

Q: Why do banks want the SEC to redefine crypto-assets?

A: Banks believe that the current definition of crypto-assets does not distinguish between asset types and use cases and fails to consider the differences between cryptocurrencies like Bitcoin and traditional financial instruments recorded on a blockchain network.

Looking Ahead: The Future of Digital Asset Custody ⏳

The ongoing battle for asset custodianship between U.S. banks and the SEC will shape the future of digital asset custody services. If banks are allowed to play a greater role, it could lead to increased mainstream adoption and improved regulatory standards within the crypto space. Conversely, if the SEC maintains the status quo, nonbank entities will continue to dominate the custody landscape. The outcome of this push for change will undoubtedly have far-reaching consequences for the entire industry. 🌐

References: – Original news source – Spot-Bitcoin ETFs Reduce the Power of Whales and Increase Stability: Nansen Analyst – Julia Smith’s Other Articles – Follow Us on Google News – Eric Balchunas’ Tweet – Matt Hougan’s Tweet

📣 Share your thoughts on this topic! How do you see U.S. banks’ involvement impacting the future of digital asset custody? 🚀

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