The Securities and Exchange Commission (SEC) has officially repealed a controversial rule that required financial firms holding cryptocurrency for customers to report those assets as liabilities on their balance sheets.
In a bulletin released on January 23, the SEC announced the revocation of Staff Accounting Bulletin (SAB) 122, which rescinds SAB 121—a policy introduced in March 2022 that faced heavy criticism from the crypto industry.
SAB 121 had sparked significant backlash due to its complex reporting requirements. Critics argued that the rule added unnecessary complexity to the custody of digital assets, burdening firms with additional regulatory hurdles.
The repeal of the rule was met with relief from industry figures, including SEC Commissioner Hester Peirce, who celebrated the change in a post on X (formerly Twitter): “Bye, bye SAB 121! It’s not been fun.”
Impact of SAB 121 Repeal on Crypto Custody
The SEC’s decision to rescind SAB 121 is expected to benefit custodians handling Bitcoin and other cryptocurrencies, particularly those working with regulated banks and financial institutions. This shift could enhance security and foster greater trust in crypto custody, offering a more secure alternative for users who are less familiar with self-custody or cryptocurrency wallets.
Moreover, institutional custody of digital assets could help address the risks associated with losing private keys, making the crypto space more accessible and reducing barriers to entry for newcomers. With more trusted institutions offering custody services, crypto adoption could accelerate, particularly among institutional investors and users seeking a safer way to manage their assets.
The change also promises to increase financial inclusion by providing a secure means for individuals who may not have the technical knowledge or resources to create secure digital wallets. The clarity introduced by this move could lead to increased confidence in the cryptocurrency ecosystem.
SEC’s Changing Stance on Crypto
The repeal of SAB 121 comes amid a broader shift in the regulatory landscape for crypto. With the Republican administration now in power, many of the more restrictive policies toward cryptocurrency are being rolled back. This includes recent changes following the inauguration of President Donald Trump, who appointed SEC Commissioner Mark Uyeda as interim chair.
Uyeda has been vocal about his concerns with the SEC’s previous approach under former Chairman Gary Gensler, describing it as overly aggressive. In fact, a report from Cornerstone Research on January 23 revealed that under Gensler’s leadership, the SEC initiated just 33 crypto-related actions in 2024, a sharp decline from the 47 actions in the previous year, which saw the highest level of enforcement activity.
Despite these changes, the SEC remains active in the crypto space. In 2024, the commission filed lawsuits against 90 defendants, including 57 individuals and 33 companies, highlighting the ongoing regulatory attention on the industry.
Reactions from the Crypto Community
While many in the crypto community are celebrating the repeal of SAB 121, some critics have expressed concern about the implications of the decision.
Jacob, the CEO of WhaleWire, voiced skepticism on X, questioning why the Bitcoin (BTC) community is celebrating the news that banks can now hold BTC, even though the rule itself doesn’t explicitly mention Bitcoin. He argues that the original vision of the Bitcoin protocol, as envisioned by its pseudonymous creator Satoshi Nakamoto, was to eliminate the need for third-party control over assets.
According to Jacob, the growing involvement of banks in holding Bitcoin could signal a shift away from the decentralized ideals that Bitcoin was originally built upon. He warned that the BTC ecosystem might be becoming “counterintuitive” in 2025, as the cryptocurrency increasingly relies on centralized institutions for storage. In his view, this shift represents a failure to adhere to the core principles of Bitcoin and could have negative long-term consequences for the community.
Looking Ahead
Despite some criticism, the SEC’s repeal of SAB 121 marks a significant step in easing regulatory hurdles for crypto custodians and could pave the way for greater institutional involvement in the sector. As the regulatory landscape continues to evolve, the crypto community will be watching closely to see how these changes impact the industry’s growth and future direction.