CRYPTO IS MACRO NOW: Swords Drawn-SAB 121 Moves Through Congress | Op-Ed


By Noelle Acheson, Crypto Is Macro Now

This (past) week, the US House of Representatives voted in favour of a bill to repeal SAB 121, the SEC’s guidance that effectively blocks banks from offering crypto custody.

On the same day, the White House said it would veto the bill.

This is more than nuts, it is alarming, and shows just how narrow and yet controlling the US government wants to become. I mean, we knew this, but the discarding of any pretence otherwise is a sign of either overconfidence or desperation, neither of which are good.

In case you haven’t been following this, I wrote about it in more detail here (Feb 7), but in brief:

In April of last year, the SEC published Staff Accounting Bulletin (SAB) 121, which stipulated that all listed banks had to record the dollar amount of crypto assets held in custody on their balance sheets as liabilities, offsetting this with a corresponding capital provision. This makes it prohibitively expensive for banks to offer crypto custody services.

The objections are many, and range from the technical to the conceptual and even the legal – here are just a few:

1) Assets held in custody are generally not held on the balance sheet, which makes sense since they do not belong to the custodian. Custody is a service and does not imply investment in or ownership of the assets.

2) No other asset class gets this treatment.

3) SAB 121 means that crypto custody services can only be offered by entities without the same degree of oversight and regulation, begging the question as to just who is being protected here.

4) The SEC drew up the bulletin without consulting bank regulators, even though it has a material impact on bank business operations.

5) SEC Chair Gary Gensler has insisted that SAB 121 is just a “guideline”, but it specifies a deadline for compliance which suggests the intent to enforce.

6) SAB 121 is in conflict with crypto custody guidance from Basel (which sets global regulatory standards for banks) and the Office of the Comptroller of the Currency (the US bank regulator).

7) In October of last year, the Government Accountability Office (GAO) ruled that the SEC did not follow proper procedure in implementing this measure, and that it should be considered not a guideline but a “rule” under the Congressional Review Act (CRA). This requires a detailed cost/benefit analysis and a period for public comment before submission to Congress, which has the option of rejecting the rule.

The repeal-SAB 121 bill passed on Wednesday, 228-182, with 21 Democrats voting in favour, an encouragingly high number given the widening partisan divide in Congress.

And this was after the White House sent out a relatively threatening memo promising a veto.

The whole document is astonishing. I mean, call me naïve, but presidential vetoes are rare – according to a cursory search, less than 0.6% of bills presented to the president’s desk to date have been rejected.

It’s also factually incorrect. Take this sentence, for example:

“Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto-assets would introduce substantial financial instability and market uncertainty.”

What “comprehensive and effective financial regulatory framework”? There isn’t one.

And the repeal bill would “disrupt” the SEC’s “work to protect investors in crypto-asset markets”, only SAB 121 leaves investors more vulnerable by blocking the entrance of highly regulated entities.

Here we have the president’s office telling the Government Accountability Office, the banking industry, and now also Congress (which it is supposed to serve!!): “you’re wrong”. And this is after being fed incorrect information by an obviously biased faction.

From across the ocean, I’ve been watching the deepening dysfunction of US politics with growing unease and frustration.

Still, no matter how great the frustration, I do like my silver linings. It now feels like the conceptual battle over transactional freedom (of digital currencies) is moving into the end game. There’s this egregious step, there are the absurd Wells notices being flung around, there’s the obvious untruths spoken in public by the regulator of the world’s largest financial market… these are meeting a growing community of determined, principled and well-funded idealists who are willing to take the fight as far as it can go.

Nicole Acheson

Noelle Acheson is an expert Tradfi & an ecommerce entrepreneur.  She was also Managing Director of Research for CoinDesk and Head of Market Insights for Genesis Trading. She has been writing crypto newsletters for 7 years, and wants to continue sharing what she’s learning about crypto, macro and their overlap.