House Fails to Overturn Biden's Veto on Crypto Accounting Bill

U.S. House Fails to Overturn Biden's Veto on SEC's Crypto Accounting Rules

On July 11, 2024, the U.S. House of Representatives fell short in overturning President Joe Biden's veto on a bill aimed at reversing the Securities and Exchange Commission's (SEC) contentious crypto accounting bulletin, SAB 121. The vote, requiring a two-thirds majority, saw 228 lawmakers in support of the override, including 21 Democrats and 207 Republicans, ultimately missing the mark by 60 votes. Consequently, American banks will continue to face restrictions in providing crypto custodial services.

SAB 121 dictates that companies holding crypto assets must list them as liabilities on their balance sheets. This development coincides with the SEC's authorization of spot Bitcoin and Ether ETFs, which mandate the custody of actual BTC and ETH by third-party entities. However, traditional banks are barred from safeguarding these digital assets, resulting in exchanges like Coinbase holding the bulk of assets associated with the ETFs.

Expressing disappointment, Pro-crypto House Financial Services Committee Chair Rep. Patrick McHenry conveyed that the Biden administration had ample opportunities to collaborate on digital asset policy. Despite efforts by industry leaders, including Ripple CEO Brad Garlinghouse, to engage with lawmakers and the Biden administration, the veto stands, potentially influencing the future trajectory of digital asset regulation.

Key Takeaways

• The U.S. House failed to nullify Biden's veto on SEC's crypto accounting regulations.
• The override received support from 228 lawmakers but fell short by 60 votes for the required two-thirds majority.
• SAB 121 remains intact, limiting U.S. banks' role as crypto custodians.
• Approval of spot Bitcoin and Ether ETFs creates a situation where banks are unable to hold the assets, granting control to exchanges like Coinbase.
• Disappointment is expressed by the crypto industry, emphasizing the missed opportunities for collaboration with the Biden administration.

Analysis

The inability to overturn President Biden's veto on SAB 121 restricts U.S. banks from engaging in crypto custodial services, ultimately benefiting exchanges such as Coinbase. Amidst the SEC's approval of spot Bitcoin and Ether ETFs, this decision accentuates a regulatory gap favoring non-bank custodians. In the short term, traditional financial institutions encounter limited access to the crypto market, while the long-term ramifications may include potential regulatory adjustments to balance market roles. The persistent veto underscores a cautious approach to integrating digital assets by the Biden administration, potentially impeding broader institutional adoption and innovation in crypto services.

Did You Know?

• SAB 121:
  • SAB 121 denotes the Securities and Exchange Commission's (SEC) controversial crypto accounting bulletin, which mandates companies to classify crypto assets as liabilities on their balance sheets. This has substantial implications for how financial institutions account for and handle digital assets, potentially restricting their involvement in the crypto market.
• Spot Bitcoin and Ether ETFs:
  • These are exchange-traded funds that track real-time prices of Bitcoin and Ether, enabling investors to trade shares representing the value of these cryptocurrencies. Unlike futures-based ETFs, spot ETFs necessitate the actual possession of the underlying assets, namely Bitcoin (BTC) and Ether (ETH).
• Crypto Custodians:
  • These are entities responsible for securely storing and managing digital assets on behalf of investors. In this context, U.S. banks are barred from serving as crypto custodians due to SAB 121, leading exchanges like Coinbase to manage the majority of assets tied to spot Bitcoin and Ether ETFs. This role is crucial for ensuring the security and integrity of digital asset investments.