The Crypto Industry Faces a Critical Moment in the U.S. Congress

The next two weeks could be decisive for the Crypto industry as it faces major legislative developments in the U.S. Congress that could reshape the regulatory landscape for digital assets in the U.S.

The industry is closely watching the Senate’s upcoming vote on the repeal of Staff Accounting Bulletin No. 121 (SAB 121). SAB 121, originally issued by the SEC (U.S. Securities and Exchange Commission), requires financial institutions to list digital assets they hold in custody for customers on their balance sheets.

This practice differs from traditional custody asset treatment, which does not consider custody assets as part of the company’s own balance sheet. Critics argue that this could unfairly inflate banks’ assets and liabilities, lead to increased capital reserve requirements, and could stifle the growth of Crypto custody services. Last week, a bipartisan effort to repeal the rule was launched in the House of Representatives, with 21 Democrats joining Republicans in the effort.

Ron Hammond, Director of Government Relations at the Blockchain Association, said via X, "Last week, 21 Democrats took a difficult vote and joined Republicans to repeal the SEC's SAB 121. This is an issue that is important to both banks/Crypto assets and a personal priority for SEC Chairman Gensler."

The Senate, led by Senator Cynthia Lummis, is expected to follow suit this week. However, President Biden has indicated plans to veto the repeal bill, which would require a two-thirds majority in Congress to override the veto.

Hammond said: "With such sparse majorities in both the House and Senate, we have seen a number of Congressional Review Acts (CRAs) made it to the president's desk on a bipartisan basis, only to fail at that stage. This requires a two-thirds vote in Congress to overturn. Biden plans to veto this bill, so it's a tough hill to climb."

Another key legislative item on the agenda is a bill introduced by Reps. Larry Bucshon and Lisa Blunt Rochester.

The bipartisan initiative, which is set to be voted on this week, calls for the Department of Commerce to serve as the president's lead advisor on blockchain issues. The bill also proposes the establishment of an advisory group within the Department of Commerce to further integrate blockchain technology into federal governance and policymaking.

Another high-profile legislative push is the upcoming vote on the FIT 21 bill on May 23-24. The bill, authored by House Financial Services Committee Chairman Patrick McHenry, represents the first comprehensive attempt to establish a regulatory framework for crypto assets at the federal level. Hammond emphasized that "FIT 21 is a valuable achievement of Patrick McHenry and the first time Congress has voted on a regulatory framework for Crypto assets. This is a moment that has been brewing for nearly a decade." The bill has attracted a great deal of attention, and its amendments will be critical in shaping its final form, appealing to both Democratic and Republican lawmakers.

These legislative efforts come against the backdrop of increased regulatory scrutiny from SEC Chairman Gary Gensler and heightened concerns expressed by the Biden Administration about the alleged risks of Crypto assets.

The Administration argues that SAB 121 is essential to protecting investors and maintaining the stability of the financial system. Conversely, many in Congress and the industry believe that the SEC’s current approach hinders innovation and fails to provide clear compliance guidance.

In addition, the intersection of Crypto policy and election-year dynamics cannot be underestimated.

With former President Trump’s recent endorsement of Crypto assets and their bipartisan potential, Crypto asset policy is becoming an important campaign issue. Hammond noted: “There is little political risk in Trump’s involvement in the Crypto space, but it will have great benefits given the campaign victories of Crypto assets in both parties in the primaries. This positions Crypto assets as a unique issue that can influence the demographic structure of voters, especially young voters who have shown a sustained interest in digital asset technology.”