Research Summary

The report discusses President Biden’s veto of a bill to overturn the SEC’s Staff Accounting Bulletin No. 121 (SAB 121), which impacts the accounting of digital assets held by public companies. It also covers Coinbase’s legal battle with the SEC over the need for clear rulemaking for the digital assets industry.

Key Takeaways

President Biden’s Veto of SAB 121 Overturn

  • Bill Vetoed: President Biden vetoed a resolution to overturn the SEC’s SAB 121, which provides guidance on how public entities should account for obligations to safeguard third parties’ cryptocurrency on their balance sheets.
  • Impact on Banks: SAB 121 effectively prevents banks from holding cryptocurrency in custody due to the impact it would have on their balance sheet liquidity requirements. This has led to criticism from the American Banking Association.

SEC’s Stance on SAB 121

  • SEC’s Position: The SEC maintains that SAB 121 is necessary as it provides guidance on the accounting and auditing of digital assets held by public companies. The SEC expects public entities to include third-parties’ cryptocurrency holdings as liabilities in their own balance sheets.

Coinbase’s Legal Battle with the SEC

  • Call for Clear Rulemaking: Coinbase has filed a closing brief in the Court of Appeals for the Third Circuit, arguing that the SEC should create clear rulemaking for the digital assets industry. Coinbase claims that the SEC is trying to destroy the industry by demanding impossible standards.
  • SEC’s Response: The SEC maintains that existing rules already apply to crypto and formally rejected Coinbase’s petition for rulemaking. The SEC argues that existing regulations are sufficient and are not “unworkable” for crypto asset securities.

Actionable Insights

  • Monitor Regulatory Developments: Stakeholders in the digital assets industry should closely monitor regulatory developments, particularly those related to the SEC’s SAB 121 and its impact on the accounting of digital assets.
  • Understand Legal Implications: Companies in the digital assets industry should understand the legal implications of the SEC’s regulations and President Biden’s veto of the bill to overturn SAB 121. This could impact their operations, particularly if they hold cryptocurrency in custody.
  • Follow Court Decisions: The outcome of Coinbase’s legal battle with the SEC could have significant implications for the digital assets industry. Stakeholders should follow this case closely as it could influence future rulemaking in the sector.

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