Rep. Nickel: SEC's Custody Rule Turns Crypto Regulation into a 'Political Football'

Representative Wiley Nickel accuses the U.S. Securities and Exchange Commission (SEC) of turning cryptocurrency regulation into a "political football," claiming its "open hostility" is not in President Joe Biden's best interests. In a letter to SEC Chair Gary Gensler, Nickel, a Democrat, criticizes the regulator's attempt to pass the controversial Staff Accounting Bulletin 121 (SAB 121), arguing that it goes against the SEC's mission to protect investors and oversteps its authority.

SAB 121 proposes that SEC-reporting entities must record crypto holdings as liabilities on their balance sheets if they are custodied by them. Nickel argues that this rule would hinder American banks from custodying crypto exchange-traded products at scale, thus increasing concentration risk by favoring non-bank entities.

The SEC’s “open hostility” toward the cryptocurrency industry “isn’t serving President Biden’s best interests,” he added.

“The SEC is turning cryptocurrency regulation into a political football and forcing President Biden to choose sides on an issue that matters to many Americans,” the North Carolina Representative wrote.

Nickel urges Gensler to withdraw SAB 121 and expresses confidence that a bipartisan resolution in the Senate will invalidate the proposed rule. He believes that the resolution will send a message to adjust the SEC's approach to digital assets.

“I’m hopeful that this bipartisan, bicameral resolution will send a message: it’s time to adjust the SEC’s misguided approach to digital assets.”

The House of Representatives recently voted to overturn SAB 121, with many Republicans and Democrats voicing concerns about its impact on U.S. markets and investors. U.S. Representative Tom Emmer, among others, argues that the rule would make U.S. markets less fair, orderly, and efficient.

Nickel and others fear that SAB 121 could drive U.S. investors to seek offshore custody solutions, potentially increasing long-term risks. With the bill now awaiting Senate consideration and the possibility of reaching President Biden's desk, the outcome remains uncertain.

The debate surrounding SAB 121 highlights the complex intersection of cryptocurrency regulation, politics, and investor protection. The resolution of this issue will shape the future landscape of crypto regulation in the United States.