The Home Monetary Providers Committee (HSFC) pushed ahead a decision that might change the panorama for institutional adoption of Bitcoin and crypto. On February 29, a markup listening to noticed bipartisan help for a decision aimed toward overturning a Securities and Trade Fee (SEC) guideline—Employees Accounting Bulletin 121 (SAB 121)—which has been a barrier for banks inquisitive about crypto custody providers. The vote resulted in 31 members in favor and 20 towards.

When Will US Banks Be In a position To Custody Crypto?

The decision, propelled by US Republicans Wiley Nickel and Mike Flood, seeks to leverage the Congressional Overview Act to revoke what they deem an “unlawful rule.” The HSFC articulated their stance, stating, “The SEC’s Staff Accounting Bulletin 121 leaves consumers unprotected by deterring regulated banks from being digital asset custodians. US Republican Wiley Nickel and US Republican Mike Flood’s bipartisan resolution reverses this unlawful rule using the Congressional Review Act.”

US Republican Mike Flood voiced a crucial perspective on the SEC’s present stance, asserting, “SEC has virtually locked out the most regulated institutions from serving as custodians for digital assets. It’s time to roll back SAB 121 and to stop Gary Gensler’s overreach.”

.@SECGov has nearly locked out essentially the most regulated establishments from serving as custodians for digital property. It’s time to roll again SAB 121 and to cease @GaryGensler’s overreach. pic.twitter.com/n3xWRhPMWq

— Rep. Mike Flood (@USRepMikeFlood) February 29, 2024

Echoing the committee’s sentiments, the Chamber of Digital Commerce introduced, “BIG NEWS! The bipartisan push from US Republican Wiley Nickel, US Republican Mike Flood, and Senator Lummis to nullify SEC’s SAB 121 has successfully passed markup and is on its way to the House floor.”

This improvement is seen as a pivotal second for digital asset regulation, aiming to rectify the overreach of SAB 121, which has been criticized for its detrimental affect on client safety and the digital asset custody market.

Perianne Boring, the founding father of the Chamber of Digital Commerce, highlighted the importance of this legislative progress, stating, “PROGRESS: SAB 121 passed out of Committee today with bipartisan support! It’s headed to the House floor.”

This sentiment is shared by Jake Chervinsky, CLO at Variant, who criticized SAB 121 for being “an unlawful rule adopted in violation of the Administrative Procedures Act and the Congressional Review Act that unfairly punishes crypto without any coherent justification.” Nevertheless, the famend crypto lawyer additionally warned that that is “likely the end of the story in Congress. Getting repeal done is nearly impossible. Lawsuit or bust.”

Why Repealing SAB 121 Issues For Spot Bitcoin ETFs

The hassle to repeal SAB 121 is additional justified by issues over the focus danger within the custody of bitcoin for ETFs. An op-ed by Wiley and Nickel in Newsweek emphasised the significance of involving banks within the custody of digital property, citing the approval of 11 spot bitcoin ETFs as a step ahead however not the top of the regulatory journey.

Most notably, they highlighted that the accredited ETFs depend on simply 4 custodians, with a big focus in a single entity [Coinbase]. Furthermore, Nickel and Flood identified the absence of banks as custodians for these ETFs, emphasizing that banks’ experience and controlled framework make them preferrred for such a task, notably given the character of bitcoin as a bearer instrument.

They argue, “This concern is amplified by the fact that none of the custodians are banks […] The SEC could have chosen to protect investors by simply rescinding SAB 121. Unfortunately, to this point, SEC chair Gary Gensler has not indicated interest in doing so.”

The op-ed recognized SAB 121 as the first barrier stopping banks from serving as custodians, because it requires digital property to be included on banks’ steadiness sheets, diverging from the therapy of conventional securities and imposing undue capital and liquidity burdens on these establishments.

At press time, BTC traded at $61,286.