The U.S. Securities and Exchange Commission (SEC) has not limited its disputes to private companies. It has also engaged in numerous legal battles with U.S. government entities.
Congress and Public Representatives Could Not Overpower the SEC
In recent years, the U.S. Securities and Exchange Commission, also known as the SEC, has consistently been embroiled in legal and regulatory conflicts with various entities, organizations, exchanges, and cryptocurrency service providers. Recently, the repeal of SAB 121 has become a highly controversial topic. This shift is one of the developments that could have profoundly impacted the future of blockchain and cryptocurrency industries, which we will explore in the next issues.
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The SEC’s disputes have not been limited to private companies; it has also engaged in numerous legal battles with U.S. government-owned entities and banks. Understanding why the SEC frequently clashes with organizations that support blockchain technology or why shadowy forces intervene at critical moments of pivotal changes requires separate scrutiny, which will be addressed in future issues if possible.
SAB 121 Directive
On December 19, 2022, the SEC issued the SAB 121 directive. This bulletin required cryptocurrency service providers, financial institutions, and banks to list their cryptocurrency assets on their balance sheets under a category labeled “asset-liability.”
The directive, which became mandatory on April 1, 2023, obligated companies to record customer cryptocurrency assets as liabilities on their balance sheets. This placed an additional burden on institutions, requiring them to manage these assets similarly to traditional ones. The problem lies in the extreme price volatility of cryptocurrencies, which constantly alters their dollar value. As a result, this policy would significantly affect institutions’ capital and liquidity requirements.
Anti-Public Hidden Hands
Last month, U.S. Congress members, recognizing the unintended consequences of this restrictive policy, stood firmly against the government and the SEC to repeal Staff Accounting Bulletin 121 (SAB 121).
The repeal bill was passed by a majority vote in the House of Representatives and subsequently approved by the Senate. At this point, President Joe Biden needed to give the final verdict, either endorsing or vetoing the bill to finalize it.
The presidency had about two weeks to announce Biden’s decision. Just before the final decision, the American Bankers Association (ABA) sent a letter to Biden stating: “Preventing large-scale supervised banking organizations from providing effective digital asset custodial services will harm investors, customers, and ultimately the financial system.”
Consequently, Biden used his presidential veto power to prevent the repeal of SAB 121, ensuring the directive’s enforcement remains in effect at least until the end of his presidency.
Despite opposition from Congress, the Senate, the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, Biden stood as the final barrier against the repeal. This suggests the presence of behind-the-scenes forces that consistently steer outcomes as they desire.
The clearest indication of this influence is the SEC’s alignment with Biden’s stance, reflecting its significant influence within the U.S. government. This is evident in a White House statement: “Restricting the SEC’s ability to maintain a comprehensive and effective regulatory framework for digital assets will lead to significant financial instability and market uncertainty.”
In the May vote in the U.S. House of Representatives, most members voted in favor of repealing the directive, and the repeal was approved. Subsequently, it was also passed by the Senate. With all eyes on President Joe Biden’s final decision, he vetoed the House’s decision at the last possible moment.
Why Is This Directive So Important? The implications of this change for the future of cryptocurrencies are immensely beneficial for several reasons. It can be said with certainty that its significance is on par with the approval of a Bitcoin ETF investment fund.
Here are three key positive impacts of repealing this directive:
1. Facilitation for Financial Institutions
Repealing SAB 121 would relieve banks from the obligation to list customers’ digital assets on their balance sheets. This would reduce regulatory burdens and the need to hold substantial capital reserves against these assets, making it easier for banks to provide cryptocurrency custodial services.
2. Greater Growth in the Crypto Market via Increased Investment
This move could encourage more banks and financial institutions to enter the cryptocurrency market, leading to greater institutional participation and adoption of digital assets. Ultimately, it would increase the number of banks offering cryptocurrency custody services to their customers. This development would undoubtedly enhance the credibility and accessibility of cryptocurrencies for users.
3. Regulatory Clarity and Increased Innovation
Removing this requirement could lead to clearer regulations, encouraging innovation. Companies could develop more efficient and user-friendly cryptocurrency services without facing heavy regulatory constraints.
Main Factors Influencing the Future of Bitcoin and Cryptocurrencies
Throughout history, anything that has increased in value and price has been a product or service whose demand and acceptance have grown. Thus, anything valuable today is backed by demand. Similarly, the increased demand and adoption of cryptocurrencies in recent years stem from their utility in addressing human needs.
Broadly speaking, two primary factors influence the fate of this industry, its wider acceptance, and the influx of more investment:
1. Security
Security has always been crucial in all aspects of human life. For a system like blockchain, which claims to address the flaws of traditional banking, security is the first prerequisite for gaining public trust.
2. Regulations
Regulators define safe and unsafe domains for societies. When a government supports an asset or service, such as a national currency, it provides assurance that encourages people to accept it as a medium of exchange. Similarly, regulatory support for blockchain technology would lead to widespread public trust.
This is where some governments, for often opaque reasons, use their power to halt or slow down the adoption of new phenomena in society. In 90% of cases, the sole political motive behind such opposition is preserving the government’s power.
Conclusion
History has shown that blockchain technology and cryptocurrencies, like other growing technologies, will gradually find their way, and regulatory institutions will eventually have no choice but to align with and embrace them.
The bright future of this reality can already be observed in the results of adoption and regulation by leading countries like Japan and its positive impacts on their economy, welfare, and culture. Many issues of our research journal have explored various countries’ approaches to blockchain technology. For further insight, we recommend reading the article Crypto Regulations in Japan published in Issue Eight (Fifth Official Issue), to learn about Japan’s unique perspective on this technology.
