The U.S. Securities and Exchange Commission (SEC) announced Thursday that it had rescinded accounting guidance long criticized by the cryptocurrency industry. The move signals an early shift under President Donald Trump’s administration to roll back key regulatory measures enacted during the tenure of his predecessor, Joe Biden.
The decision to revoke Staff Accounting Bulletin 121 (SAB 121), which had imposed strict accounting requirements on companies holding digital assets for clients, is a major win for the crypto sector and has already sparked reactions from industry leaders, lawmakers, and regulators.
What Was SAB 121?
Issued in March 2022 under the leadership of former SEC Chair Gary Gensler, SAB 121 required companies to treat digital assets held in custody for their clients as liabilities on their balance sheets. This measure created additional accounting burdens for institutions, increasing the cost of providing custody services for cryptocurrencies.
Gensler, who resigned earlier this week, defended the rule as necessary to protect investors in the event of insolvency. Pointing to the frequent bankruptcies in the crypto sector, he maintained that the rule ensured companies were accountable for the risks associated with holding volatile digital assets on behalf of customers.
However, the guidance faced fierce opposition from the crypto industry and crypto-friendly lawmakers. They argued that it unfairly stigmatized the sector and made it prohibitively expensive for banks and other financial institutions to offer crypto custody services. Critics also contended that the rule disincentivized innovation and adoption in a rapidly evolving industry.
Efforts to overturn SAB 121 in Congress were stymied in May 2023 when then-President Biden blocked lawmakers from advancing a measure to cancel the guidance.
The SEC’s Reversal
In a notice posted on its website Thursday, the SEC announced the withdrawal of SAB 121, describing it as part of an effort to align its policies with the priorities of the Trump administration. The agency stated that the rescission reflects “a commitment to fostering innovation and ensuring regulatory clarity in the digital asset marketplace.”
The decision comes just days after Gary Gensler’s departure, leaving the SEC under interim leadership as it navigates a period of transition. The move was spearheaded by Republican SEC Commissioner Hester Peirce, who has long been an advocate for crypto-friendly regulations and a critic of the restrictive measures enacted under Gensler’s tenure.
Peirce, who will lead the newly formed SEC Crypto Task Force, took to social media platform X (formerly Twitter) to celebrate the decision. “Bye bye, SAB 121! It’s not been fun!” she posted.
Industry and Lawmaker Reactions
The cryptocurrency industry greeted the rescission of SAB 121 with enthusiasm, viewing it as a step toward reducing regulatory uncertainty and fostering a more business-friendly environment.
Kristin Smith, CEO of the Blockchain Association, praised the decision in a statement: “This is a huge relief for companies working to provide secure custody services for digital assets. SAB 121 was a misguided policy that placed an undue burden on the industry, and we’re glad to see it go.”
The banking industry also welcomed the change. Paige Pidano Paridon, co-head of regulatory affairs at the Bank Policy Institute, emphasized that the decision restores banks’ ability to offer custody services for digital assets. “Today’s decision restores banks’ ability to serve as a trusted and secure option for clients that choose to custody digital assets,” Paridon said.
Pro-crypto lawmakers echoed these sentiments, emphasizing the need for a balanced regulatory framework that supports innovation while protecting investors. Representative Patrick McHenry (R-NC), chair of the House Financial Services Committee and a vocal critic of SAB 121, called the reversal “a step in the right direction” and urged the SEC to work collaboratively with Congress to create clear rules for the digital asset industry.
“This decision shows that we can prioritize investor protection while also ensuring that America remains a leader in the development of blockchain and crypto technologies,” McHenry said in a statement.
The repeal of SAB 121 highlights a broader shift in regulatory approach under the Trump administration, which has signaled its intention to prioritize deregulation and economic growth over stringent oversight.
President Trump’s administration has made it clear that it views blockchain and cryptocurrency as key drivers of innovation and economic opportunity. Speaking at a recent economic summit, Treasury Secretary David Malpass emphasized the need for regulatory clarity to unlock the full potential of digital assets.
“We believe that a balanced approach to regulation can foster innovation, ensure investor confidence, and maintain America’s leadership in the global financial system,” Malpass said.
The formation of the SEC Crypto Task Force under Hester Peirce underscores the agency’s commitment to revisiting existing policies and creating a more flexible framework for the digital asset industry.
Criticism of the Repeal
Not everyone is celebrating the decision. Critics argue that the rescission of SAB 121 could expose investors to greater risks, particularly in the event of bankruptcies or financial instability among companies holding digital assets.
Dennis Kelleher, president and CEO of Better Markets, a nonprofit advocating for financial reform, called the move “reckless.”
“This is a gift to the crypto industry at the expense of ordinary investors. SAB 121 was put in place to ensure transparency and accountability. Its repeal opens the door to greater financial risk in a sector already plagued by fraud and instability,” Kelleher said in a statement.
Some lawmakers also voiced concerns about the implications of the decision. Senator Elizabeth Warren (D-MA), a vocal critic of the crypto industry, described the repeal as a “dangerous step backward.”
“Without strong safeguards, we are putting investors and our financial system at risk,” Warren said. “The SEC should focus on protecting consumers, not catering to the whims of the crypto industry.”
Crypto Industry
The rescission of SAB 121 is likely to have significant implications for the cryptocurrency industry, particularly for companies offering custody services. By removing the requirement to account for digital assets as liabilities, the SEC has effectively lowered the cost and complexity of providing such services.
This move could pave the way for greater adoption of cryptocurrencies by mainstream financial institutions, which have been wary of entering the market due to regulatory uncertainties and potential liabilities.
Analysts predict that the decision could also lead to increased competition among custody providers, driving innovation and improving service quality.
“This is a game-changer for the industry,” said Mike Novogratz, CEO of Galaxy Digital, a leading crypto investment firm. “It’s going to make it easier for banks and other institutions to get involved in crypto, which is a big win for the ecosystem.”
While the repeal of SAB 121 marks a significant victory for the crypto industry, it also raises questions about the future direction of cryptocurrency regulation in the United States.
The Trump administration’s emphasis on deregulation could create opportunities for growth and innovation, but it also carries risks, particularly in an industry that has faced numerous scandals, fraud cases, and bankruptcies in recent years.
As the SEC’s Crypto Task Force begins its work, it remains to be seen how the agency will balance its goals of fostering innovation and protecting investors. Hester Peirce has indicated that she intends to take a collaborative approach, engaging with industry stakeholders and lawmakers to develop a regulatory framework that promotes both growth and accountability.
“This is just the beginning,” Peirce said in a statement on Thursday. “We have a lot of work to do to ensure that our policies reflect the realities of the digital asset marketplace while safeguarding the interests of investors.”
