The SEC Signals a Potential Shift in Crypto Regulation: A Farewell to SAB 121
In a move that could reshape the regulatory landscape for cryptocurrencies, the U.S. Securities and Exchange Commission (SEC) has repealed its contentious crypto accounting guidance, marking a pivotal moment for the industry. This decision comes shortly after former SEC Chair Gary Gensler’s resignation, potentially signaling a new direction in crypto oversight. The repeal has been met with mixed reactions, reflecting the longstanding tensions between regulators, lawmakers, and the crypto sector.
At the center of this regulatory shake-up is Staff Accounting Bulletin No. 122 (SAB 122), which rescinds guidance introduced in SAB 121. Originally, SAB 121 required crypto custodians to account for customer-held digital assets as liabilities on their balance sheets. This mandate faced widespread criticism from industry leaders and policymakers, who argued it was both impractical and misaligned with the nature of digital assets.
SEC Commissioner Hester Peirce, a vocal critic of SAB 121, celebrated the reversal, posting on X (formerly Twitter): “Bye, bye SAB 121! It’s not been fun…” Peirce has consistently opposed the policy, once describing it as a “pernicious weed” in the regulatory garden. Her advocacy for more pragmatic crypto oversight has positioned her as a key voice in the push for reform.
Industry Pushback and Legislative Battles
Since its introduction, SAB 121 faced significant resistance from the crypto industry and beyond. By classifying customer-held crypto as liabilities, the guidance created financial and operational burdens for custodians, adding complexities to balance sheets and disclosures. Critics argued that the approach overlooked the decentralized nature of cryptocurrencies, further stifling innovation in an already volatile regulatory environment.
The pushback wasn’t limited to industry stakeholders. Lawmakers in Congress launched a bipartisan effort to overturn the guidance, resulting in a heated political battle. In 2022, the House voted 228-182 to repeal SAB 121, with support from Republicans and 21 Democrats. The Senate followed suit, voting 60-38, with key Democrats, including Senate Majority Leader Chuck Schumer, joining the effort. However, the measure was ultimately vetoed by then-President Joe Biden, keeping the controversial policy in place until now.
A Leadership Shift and New Priorities for the SEC
The repeal of SAB 121 coincides with broader changes at the SEC, including the resignation of Chair Gary Gensler, who was known for his aggressive approach to crypto regulation. During his tenure, the SEC pursued enforcement actions and lawsuits against crypto firms, often adopting a legal-first strategy that drew criticism for being reactive and unclear.
With Mark Uyeda stepping in as acting chair, the SEC appears poised to recalibrate its approach. Alongside Hester Peirce, Uyeda is co-leading a newly announced crypto task force aimed at addressing regulatory challenges more constructively. In a statement, the SEC acknowledged the limitations of its enforcement-driven strategy, noting, “To date, the SEC has relied primarily on enforcement actions to regulate crypto retroactively and reactively, often adopting novel and untested legal interpretations along the way.”
The creation of the task force underscores the SEC’s recognition of the need for clearer guidance and practical compliance pathways. This pivot suggests the agency may be moving toward a more collaborative and transparent framework, departing from Gensler’s stricter enforcement-heavy model.
Implications for the Crypto Industry
The repeal of SAB 121 represents a turning point for the crypto industry. For custodians, removing the requirement to classify customer assets as liabilities alleviates a significant financial burden and simplifies compliance. More broadly, the leadership changes and task force initiatives hint at the potential for a regulatory environment that fosters innovation while addressing risks.
However, uncertainty remains. While Gensler’s resignation and the repeal of SAB 121 are seen as positive steps, it’s unclear whether these changes will lead to substantive improvements in regulatory clarity or merely a temporary pause in the SEC’s rigorous scrutiny of the sector.
The crypto industry will be watching closely as the SEC navigates this transition. A collaborative approach that balances oversight with support for innovation could pave the way for the U.S. to reclaim its position as a leader in blockchain technology and digital assets. Conversely, a return to ambiguity or reactive enforcement could further stifle growth and drive innovation offshore.
Looking Ahead
The repeal of SAB 121 and the leadership changes at the SEC mark a moment of both optimism and uncertainty for the crypto industry. The decision reflects growing recognition of the need for balanced regulation, but the path forward remains fraught with challenges. Stakeholders hope the SEC’s new direction will prioritize clarity, fairness, and collaboration, creating an environment where the crypto sector can thrive while maintaining investor protections.
For now, the crypto world waits to see whether this marks the beginning of a more constructive era in U.S. crypto regulation—or merely a brief reprieve in the ongoing tug-of-war between innovation and oversight.
