SEC Rescinds Controversial Rule on Cryptocurrency Reporting Requirements

The Securities and Exchange Commission (SEC) has repealed a contentious rule that required financial firms holding cryptocurrency on behalf of customers to report those assets as liabilities on their balance sheets.

Background on the Repealed Rule

In a bulletin released on January 23, the SEC announced that Staff Accounting Bulletin (SAB) 122 officially rescinds SAB 121, a policy introduced in March 2022 that faced significant criticism from the crypto industry. The repealed rule had been met with disapproval due to its cumbersome reporting requirements, which industry leaders argued made custody of digital assets unnecessarily complicated.

Industry Reaction to the Repeal

The removal of the rule was met with relief, with SEC Commissioner Hester Peirce expressing her approval on social media:

“Bye, bye SAB 121! It’s not been fun.”

Peirce’s sentiment was echoed by many in the crypto community, who viewed the repealed rule as a positive development for the industry.

Regulatory Environment Shift

The repeal of SAB 121 comes as the regulatory environment for cryptocurrencies is shifting under the new administration. With the appointment of SEC Commissioner Mark Uyeda as interim SEC chair, the industry is expecting changes in the regulatory landscape.

According to a report by Cornerstone Research, the SEC under Gary Gensler initiated only 33 actions involving cryptocurrencies in his final year as SEC chairman, down from 47 in the previous year.

Impact of the Repeal on the Crypto Community

The repeal of SAB 121 is expected to have a positive impact on the crypto community, enabling custodians for Bitcoin and other cryptocurrencies through regulated banks and financial institutions. This shift could improve security and trust, providing a more secure alternative for those new to self-custody or cryptocurrency wallets.

Some of the benefits of the repeal include:

  • Improved security and trust through institutional custody
  • Greater adoption as users may find it easier to interface with crypto through trusted institutions
  • Mitigation of the risk of losing private keys
  • Improved financial inclusion for people who are not able to create secure digital wallets

Criticisms of the Repeal

While many in the crypto community have been celebrating the repeal, some critics have expressed concerns that the move goes against the original principles of Bitcoin and other cryptocurrencies. They argue that the reliance on third-party control, such as banks, undermines the decentralized nature of cryptocurrencies.

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