Congressional Call For Bitcoin Custody By Banks: Senators’ Letter To SEC’s Gensler Exposed

US Republican lawmakers from both chambers of Congress have taken a significant step in advocating for a more favorable regulatory environment for Bitcoin (BTC) and crypto asset custodians. 

In a letter addressed to US Securities and Exchange Commission (SEC) Chair Gary Gensler, a coalition of pro-crypto lawmakers, including House Financial Services Chair Patrick McHenry and Senator Cynthia Lummis, has urged the SEC to rescind its accounting rule for digital assets, known as Staff Accounting Bulletin 121 (SAB 121).

Criticism Mounts Against SEC’s SAB 121

The letter, issued on Monday and endorsed by forty-two other key members of the House and Senate, emphasizes that Congress has expressed “overwhelming” bipartisan support for disapproval of SAB 121 through the passage of H.J.Res.109. 

This resolution calls for the SEC to reconsider its stance on the bulletin, which requires custodians to recognize a liability and maintain a corresponding offset on their balance sheets, measured at the fair value of the customer’s digital assets. 

The lawmakers argue that this approach deviates from established accounting standards and fails to accurately reflect the legal and economic obligations of custodians, potentially putting consumers at greater risk.

One of the key criticisms of SAB 121 is that it was implemented without adequate consultation with prudential regulators, leading to “confusion and inconsistencies” in its application among financial institutions. 

The lawmakers assert that the SEC has circumvented the necessary notice and comment rulemaking process mandated by the Administrative Procedure Act (APA) by issuing this rule as staff guidance. 

They contend that the SEC’s Office of Chief Accountant (OCA) has only exacerbated the situation by working with select institutions to avoid the balance sheet reporting requirements on a case-by-case basis, undermining the transparency and consistency that the SEC claims to uphold.

BNY Mellon’s Approval As Bitcoin Custodian Could Signal A Shift?

The timing of the letter is significant, coming just four days after the SEC granted the Bank of New York (BNY) Mellon an exemption from SAB 121, marking it as the first bank to receive such approval. 

This exemption could potentially open the door for other financial institutions to seek similar opportunities, signaling a possible shift in the SEC’s approach towards traditional banks entering the cryptocurrency space. 

Michael Novogratz, CEO of Galaxy Digital, speculated that this move by the SEC may encourage more banks to engage with digital assets, provided the regulatory landscape becomes more conducive.

However, the pro-crypto lawmakers are calling for the SEC to collaborate with Congress to ensure that Americans have access to safe and secure custodial arrangements for Bitcoin and other digital assets. 

By rescinding SAB 121, they argue, the SEC would not only align itself with established accounting practices but also foster a more supportive environment for traditional financial institutions looking to participate in the cryptocurrency market.

At the time of writing, Bitcoin was trading at $63,240, having been in a tight range between the current price and the $62,000 mark for the past few days. 

Featured image from DALL-E, chart from TradingView.com