United States Congress Moves to Overturn SEC Guideline on Crypto Custody

The House Financial Services Committee has voted to pass a resolution that, if successful, would invalidate the SEC's contentious guidelines prohibiting American banks from holding cryptocurrency assets.

US lawmakers are moving forward with a resolution to involve banks in cryptocurrency custody.

The House Financial Services Committee (HSFC) has taken a major step towards allowing banks to provide custody services for digital assets. In a recent hearing, the committee voted in favor of a resolution that seeks to overturn the SEC’s Staff Accounting Bulletin (SAB) No. 121, a guideline that currently prevents banks from acting as custodians for cryptocurrencies. This development could have significant implications for the future of institutional involvement in the crypto industry.

The Road to Crypto Custody

Introduced in March 2022, SAB 121 mandates that institutions recording crypto assets as liabilities on their balance sheets. This approach, while aiming to ensure transparency and regulatory compliance, has limited the ability of banks to offer custody services for digital assets. Republican congressman Mike Flood, the main proponent of the resolution, argues that requiring banks to hold crypto assets on their balance sheets would have far-reaching consequences. He points out that such a move would affect banks’ regulatory obligations, including their capital and liquidity requirements.

Flood believes that the current treatment of custodial assets, which are traditionally considered off-balance sheet, should also include digital assets like Bitcoin. By overturning SAB 121, the resolution aims to remove roadblocks that prevent highly regulated banks from acting as custodians of digital assets. The House Financial Services Committee emphasizes that this move is essential to protect consumers and facilitate the safe and secure storage of crypto assets.

The Battle Ahead

Despite the committee’s approval, it is important to note that the resolution must pass a full floor vote in both the House and the Senate before SAB 121 can be officially overturned. The outcome of these votes will be crucial in determining whether banks can enter the crypto custody market unhindered.

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Q&A – What Else Do You Want to Learn About Crypto Custody?

Q: What are the benefits of banks offering custody services for digital assets? A: Banks are renowned for their robust security measures and trusted infrastructure. By entering the crypto custody market, they can provide institutional investors with a secure and regulated environment for storing their digital assets.

Q: How will the resolution impact the overall adoption of cryptocurrencies? A: Allowing banks to offer custody services will instill confidence in institutional investors who have been hesitant to enter the crypto space due to concerns about security and regulatory compliance.

Q: What risks are involved in banks becoming custodians of digital assets? A: One potential risk is the concentration of custodial services within a few institutions, introducing a potential single point of failure. However, proper regulation and oversight can mitigate this risk.

Divided Opinions and Arguments

During the markup hearing, several lawmakers expressed their thoughts on SAB 121 and the resolution. Crypto-friendly Republican Congressman Tom Emmer argued that the guideline introduced unnecessary concentration risk into the crypto ecosystem. Emmer also noted that no bank currently offers custodial services for any of the eleven approved Bitcoin ETFs, which poses a significant risk to investors.

On the other hand, Democrat Congresswoman Maxine Waters, one of the lawmakers who voted against the resolution, criticized the move to rescind SAB 121. She stated that it is ironic for crypto-friendly politicians to block the SEC from providing clarity on crypto regulations, a matter that many in the industry have long called for.

Future Implications

If the resolution successfully passes through Congress, it could mark a turning point for the institutional adoption of cryptocurrencies. Banks, with their established systems and regulatory compliance, entering the crypto custody market may provide the necessary infrastructure for wider acceptance of digital assets. Furthermore, increased participation from banks could lead to improved liquidity and stability in the crypto market.

There is still a long way to go before banks can fully embrace crypto custody, but this resolution represents a significant step forward. The outcome of the upcoming floor votes will be closely watched by industry players and crypto enthusiasts alike.

References

• SEC-approved Bitcoin ETF hacked?! X account briefly said otherwise
• SEC seeks comments on Bitwise, Grayscale Bitcoin ETF options
• ‘Crypto is inevitable’ so we went ‘all in’ — Meet Vance Spencer, permabull

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