Quick Take:

• President Biden’s veto threat on a pro-crypto resolution triggers backlash.
• Resolution targets overturning SEC’s controversial SAB 121 policy.
• Critics argue policy imposes unjust compliance costs on crypto industry.

President Joe Biden incited outrage within the crypto community after announcing his intention to veto a recently passed bill in the lower chamber of Congress. The bipartisan resolution aimed at nullifying a contentious Securities and Exchange Commission (SEC) accounting policy known as Staff Accounting Bulletin No 121, or SAB 121.

Hunter Horsley, CEO of crypto investment firm Bitwise Asset Management, criticized the move, stating, “There is nothing less American than politicians impeding innovation and progress.” The frustration echoed across the industry, with Paul Grewal, chief legal officer at crypto exchange Coinbase, denouncing the veto threat as “inexcusable.”

This latest clash in Congress underscores the deep divide between pro- and anti-crypto factions as the US approaches the upcoming presidential election. While Biden aligns himself with the anti-crypto stance, his opponent, Donald Trump, actively courts crypto supporters, promising a conducive environment for industry growth.

The rift amplifies against the backdrop of the SEC’s aggressive pursuit of crypto firms, accusing them of operating as unregistered securities entities. Chair Gary Gensler’s leadership has seen a surge in enforcement actions, prompting calls for his removal due to perceived regulatory overreach.

At the heart of the controversy lies SAB 121, a key component of Gensler’s regulatory agenda. The policy mandates financial institutions holding digital assets for clients to record these assets as liabilities on their balance sheets. Since March 2022, banks and custodians must allocate additional capital to offset these liabilities, leading to increased administrative burdens and strain on capital ratios within the industry.

Ji Kim, chief legal and policy officer at the advocacy group Crypto Council for Innovation, condemned SAB 121, emphasizing its adverse impact on custodians. Kim criticized the SEC’s circumvention of standard rulemaking processes through “staff-level guidance,” undermining trust and regulatory diligence expected in the industry.

As the crypto community grapples with regulatory uncertainty, Biden’s veto threat amplifies tensions, signaling a pivotal moment in the ongoing struggle between innovation and regulation within the burgeoning industry.