US Crypto Regulation Reforms: Transitioning to a More Supportive Framework

By now, you may have heard about the new regulatory shake-ups happening in the US cryptocurrency market since America voted to put Donald Trump back in the White House last November.

Within the space of just a few weeks, the US Securities and Exchange Commission is almost unrecognisable under the latest Trump administration, which is actively trying to break down all investment obstacles for the crypto community – as it promised to do during the election run-up in 2024.

Some of the biggest moves include the announcement of the new Crypto Task Force headed up by 'Crypto Mom' Hester Peirce, who famously favours looser regulations for the market. Having joined the SEC in 2018, Hester has consistently promoted innovation within the sector and has been welcomed by the community as an advocate for clearer crypto regulation.

But the biggest change of all so far has been the replacement of SAB 121 with the newer crypto-friendly SAB 122.

Here's what that actually means in effect for digital assets and the implications for crypto-financing.

What was SAB 121?

In March 2022, the SEC created Staff Accounting Bulletin No. 121, or SAB 121. This guidance told financial institutions that if they held crypto assets for customers, they needed to list those assets as liabilities on their balance sheets. The idea was to highlight potential risks tied to safeguarding digital assets. But this move didn't sit well with many in the industry. Critics argued that it treated crypto assets differently from other custodial assets and could make it tough for banks to offer crypto custody services due to increased capital requirements.

Enter SAB 122

Fast forward to January 2025, and the SEC has now introduced SAB 122 where institutions are no longer required to record customer crypto assets as liabilities. Instead, they're advised to assess potential risks and recognise liabilities only if there's a probable loss. This approach aligns more closely with traditional accounting standards and addresses many concerns raised about SAB 121.

Why the change?

The shift from SAB 121 to SAB 122 reflects the SEC's response to feedback from various stakeholders, including financial institutions and lawmakers. The initial guidance was seen as a barrier for banks wanting to offer crypto custody services. By rescinding SAB 121, the SEC aims to create a more balanced regulatory environment that doesn't unduly hinder the integration of crypto services into traditional banking.

How will this actually affect crypto?

By rescinding the earlier SAB 121, the SEC has removed a major obstacle that previously discouraged financial institutions from engaging in crypto-related services and is part of a broader trend in US crypto regulations. The SEC and other regulatory bodies are actively working to provide clearer guidelines for the crypto industry. This includes efforts to establish a regulatory framework that balances innovation with consumer protection. While challenges remain, these developments indicate a more accommodating stance towards integrating crypto services into the financial system.

Impact on crypto-financing and crypto-backed loans

These regulatory updates are pivotal for those exploring crypto-financing avenues, including crypto-backed loans and crypto mortgages - and Enness Global is well-positioned to help navigate this evolving landscape. The clarified guidelines may incentivise more financial institutions to provide products like crypto-backed loans or enable clients to leverage their assets for borrowing. This development could also facilitate the use of cryptocurrency in real estate crypto deals, making property acquisitions with crypto more practical.

Overall, the shift from SAB 121 to SAB 122 represents a significant moment in US crypto regulation, indicating a move towards more nuanced and adaptable oversight. This adjustment addresses prior industry concerns and sets the stage for wider acceptance and integration of crypto services within the financial sector.