President Joe Biden vetoed a bill to overturn SAB 121 and launched cryptocurrencies into the political arena. But how did we get here? And where do we go?
As the race to become the next president of the United States picks up speed, or at least as fast a pace a 78-year-old and 81-year-old can muster, there is a growing industry that may play a key role in deciding who is sworn back into the White House on 20 January 2025.
On the one hand, Joe Biden’s faltering speech and increasing tendency to appear worryingly unaware of his surroundings has done little to convince voters his mind and body can survive four further years in office.
A deer caught in a billion lights and cameras, the incumbent President’s waning grip on power and lucidity has sparked clamour within his Democratic Party to replace him as their Presidential nominee.
On the other hand, Donald Trump, younger than Biden despite turning 80 when the next midterms roll around, wants to return to the White House — should he not land behind bars first.
In May, Trump became the first US President to be convicted of a felony after being found guilty of all 34 charges related to a ‘hush-money’ payment scheme to illegally influence his successful 2016 Presidential campaign.
But what do two men with 159 years of life between them know about cryptocurrencies?
SAB 121
“I am returning herewith without my approval H.J.Res. 109, a resolution that would disapprove of the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 121 (SAB 121),” Biden wrote to the House of Representatives.
The SEC’s SAB 121 requires reporting entities that act as custodians for crypto assets to include safeguarding liabilities and the corresponding assets as footnotes to financial statements. The SEC says that the bulletin adds guidance for entities “to consider when they have obligations to safeguard crypto-assets held for their platform users”.
The H.J.Res. 109 bill, a Congressional Review Act aimed at nullifying SAB 121, was first introduced in the House of Representatives, where it passed by a vote of 228-182, with 21 of the approving votes coming from the Democratic party. No Republican member of the House voted the bill down.
In the Senate, the bill was successfully passed with a vote of 60-38 and drew support from 11 members of the Democratic Party. Again, no Republican Senator voted against the bill’s progression.
With the blessings of moderate bipartisan support in both the House and Senate, the resolution landed on the President’s desk. Yet Biden decided to veto the motion and prevent it being passed into law.
Biden has vetoed just 12 bills in his current four-year tenure as President and this is his first relating to cryptocurrencies and financial services.
In his letter to the House of Representatives, Biden reasoned: “By virtue of invoking the Congressional Review Act, this Republican-led resolution would inappropriately constrain the SEC’s ability to set forth appropriate guardrails and address future issues. This reversal of the considered judgement of SEC staff in this way risks undercutting the SEC’s broader authorities regarding accounting practices.
“My Administration will not support measures that jeopardise the well-being of consumers and investors. Appropriate guardrails that protect consumers and investors are necessary to harness the potential benefits and opportunities of crypto-asset innovation.
“My Administration is eager to work with the Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, which will promote the responsible development of digital assets and payment innovation and help reinforce United States leadership in the global financial system.”
Yet, the decision has sparked controversy throughout the industry and the US political system.
Letter of concern
The Blockchain Association, a group representing members of the cryptocurrency industry, immediately released a statement on X (formally Twitter) criticising the veto. The association’s CEO Kristin Smith said that the Biden administration was “swimming against the tide of public opinion” and called on the government to work with members of the industry to address regulatory concerns.
Echoing their frustrations from within Congress is Republican Senator Cynthia Lummis. Prior to Biden’s decision to veto the bill, Lummis, alongside Republican Representative Patrick McHenry, penned a letter to Biden urging him to reconsider his plans to veto the bill.
Her frustrations have only compounded since. She slams Biden’s veto: “This administration has a well-documented history of using the most mundane, in-the-weeds rulemaking processes to force its overbearing regulations down Americans’ throats.”
She adds: “Its decision to use a staff accounting bulletin to threaten the foundation of essential custody services is deeply troubling but, unfortunately, not surprising.”
The Senator explains that she introduced the legislation to allow Biden to take “the opportunity to correct this grave error and protect the American people’s assets, and instead of taking this much-needed lifeline, he rejected it.”
At the centre of both her letter and her comments, is the belief that the American people are being ignored by the current administration. Lummis believes that the American consumer is not being protected.
She argues: “This bulletin effectively denies millions of Americans access to a safe and secure custodial arrangement for digital assets. SAB 121 puts consumer assets at a greater risk of loss because if a custodian becomes insolvent or enters receivership, under this rule, a customer’s digital assets are now vulnerable to claims by creditors of the custodian.
“This decision to veto a bill that had such overwhelming bipartisan support shows just how out of touch this administration continues to be with what people want. Americans work hard for their money and they need assurances their hard-earned financial assets are protected, especially in this economy.”
Of course, this argument is also at the focus of Biden’s reasoning for vetoing the bill. The President said he does not want to “jeopardise the well-being of consumers and investors” and will install “appropriate guardrails that protect consumers and investors”.
Both parties claim to have the interests of the American people at heart. It is almost as if there is an incredibly knife-edge election around the corner.
Lummis continues to criticise the decision to not revise the SEC’s bulletin, suggesting that: “Revising a staff accounting bulletin is very normal; in fact, for the last three decades, most bulletins have been revisions and recessions of prior guidance, but this administration broke from tradition in ignoring Congress and pushing ahead with its radical agenda.”
The Senator is keen to emphasise that the bulletin will supposedly imperil custody services.
She warns: “SAB 121 threatens the foundation of essential custody services as we know it and drastically increases the risks of bankruptcy for consumers. Issuing a legally binding directive without soliciting invaluable feedback from the industry breaks from tradition. It is not just reckless; it is downright dangerous.”
If Biden’s policies are ‘not just reckless, but downright dangerous’, what would Trump’s be?
With her support for the Republican Presidential candidate unwavering, Lummis claims: “If President Trump had been in office, I believe he would not have overextended his administration’s authority to erode consumer protections in the form of a staff accounting bulletin.”
Lummis says: “[Trump’s] position on digital assets and bitcoin could not be more different than President Biden’s — in the best way.”
Lummis explains this difference lies in Trump’s strong support for ‘financial innovation’ and desire to “ensure America remains in the driver’s seat for the management of digital assets.”
Yet, given the similarities in this argument with Biden’s letter, you would be forgiven for thinking the candidates for the Presidency were running mates.
Just as Trump “supports financial innovation”, Biden “promotes the responsible development of digital assets and payment innovation”. Just as Trump wants to put America “in the driver’s seat”, Biden wants to “reinforce United States leadership”.
The possibility of a second term in the Oval Office for Trump is distinctly possible, particularly following the conservative-dominated Supreme Court ruling in favour of broad presidential immunity recently, in a move that will likely further delay delay any verdict over his alleged attempts to overturn the 2020 election result until after November’s election.
Juan Merchan, the judge overseeing Trump’s criminal proceedings for the ‘hush-money’ trial, has postponed his sentencing until September to consider whether the immunity ruling could hinder his conviction.
As the possibility of Trump returning to the White House grows, Lummis looks ahead to what an administration under Trump for a second time will look like.
She says: “I think we will see a Trump administration that is committed to scaling back this oversized federal government President Biden created, and Trump will work hard to create an SEC that protects consumers and promotes financial advancement, not limit it.”
On the counter
After being offered the chance to respond to Senator Lummis’ criticism of the administration and SAB 121, the SEC wished to highlight that their guidance is developed with the interests of customers at the forefront.
An SEC spokesperson responded to Lummis’ comments, saying: “SAB 121 is non-binding staff guidance that, if followed, enhances important disclosure to investors in firms that safeguard crypto assets for others.
“Time and again, we have seen crypto firms fail and watched as their customers lined up at the bankruptcy court in hopes of getting what they thought was legally theirs.
“We’ve also seen the risks to investors in firms that safeguard these assets when they are hidden off balance sheets.
“These disclosures provide investors an important line of sight into the level of risk taken by crypto custodians.”
Now what?
Although the next President of the United States will not be decided solely on which geriatric candidate can best demonstrate to the American public that they understand and can deliver in developing a safe and reliable cryptocurrency market, it marks an important and growing discussion area.
Simon Forster, managing director, global co-head of Digital Assets at TP ICAP, believes that the rampant discourse surrounding SAB 121 is a landmark moment.
He says: “What has become very evident in recent months is that crypto is becoming an election matter in the US, and this has been punctuated with the attention SAB 121 is receiving.”
The essence of this growing debate comes in the growing number of people using and owning cryptocurrencies. Forster suggests: “With a reported 50 million Americans owning crypto, there seems to be a shift in political sentiment in the US, and a growing realisation that the digital assets industry is too significant to dismiss and could flourish onshore with appropriate regulation.”
The growing dichotomy between the two parties in US politics has eroded bipartisanship and increased hostilities in debates between branches of government and within those branches themselves — such fractious attitudes even led to two government shutdowns under Trump’s presidency.
So, when a bill is passed through both the House and the Senate in the US Congress with bipartisan support, a Presidential veto is a significant demonstration of the executive and legislative bodies clashing.
Despite the veto, Forster believes this is just the start of cryptocurrencies entering mainstream politics. He says: “Despite the SAB 121 veto, there was bipartisan support for the bill, which highlights the shift that is underway. Innovation and regulation must work together in a balanced and pragmatic manner, and allowing the world’s most trusted and heavily regulated institutions to custody digital assets would seem like a sensible way to protect both consumers and investors and ensure the industry has a solid foundation in the US.”
As the appetite for cryptocurrencies grows in the US, encouraged by the SEC’s decision in January to approve bitcoin ETFs, it is likely that it will continue to seep slowly into mainstream political debate and shape policy.
While cryptocurrencies remain in relative infancy within the political arena, it may not be too long before it becomes a key battleground for politicians. Although, asking the current two Presidential candidates — who were already late into their sixties when Bitcoin was first launched in 2009 — to leap headfirst into the unchartered territory of digital assets may be slightly too soon.
What can be certain, however, is every decision is made with the interests of the American people at heart.
As they claim.
