Banks Cleared to Custody Bitcoin After Rule Change

Michael Saylor, executive chairman of MicroStrategy, revealed that banks can now legally custody Bitcoin (BTC) following the repeal of the controversial SAB 121 rule.

The rule, outlined in an earlier SEC accounting bulletin, required companies engaged in crypto custody to list digital assets as liabilities on their balance sheets. This mandate made it financially unfeasible for many institutions to safeguard cryptocurrencies due to the need for substantial leverage ratios.

SAB 121: A Barrier to Crypto Adoption

The crypto industry long criticized SAB 121 as a roadblock to institutional involvement. Cryptocurrency advocates argued the rule effectively barred banks from entering the market.

“It effectively barred banks from entering the market,” said Teddy Fusaro, president of Bitwise Invest, on social media.

Efforts to repeal the rule in Congress failed last year. However, the rule was swiftly undone under the new administration, signaling a shift in the regulatory landscape.

“For years, federal agencies tried to shut crypto out of the financial system through efforts like Chokepoint 2.0. These efforts were never authorized by Congress or implemented by lawful rulemaking, so they can be undone easily,” said Jake Chervinsky, CLO at Variant.

A New Era of Regulatory Clarity

The repeal of SAB 121 has created a buzz among financial executives. Anthony Scaramucci, founder of SkyBridge Capital, highlighted the excitement around the regulatory clarity observed during the World Economic Forum in Davos, Switzerland.

“The market is not pricing this in. In Davos this week, bank executives were attending crypto events and expressing excitement about regulatory clarity,” Scaramucci noted.

Implications for the Crypto Market

The ability for banks to custody Bitcoin marks a significant milestone for the cryptocurrency industry. This change opens the door for greater institutional adoption, with major financial players now able to enter the market without facing prohibitive regulatory hurdles.

As the industry moves forward, this development could serve as a catalyst for mainstream acceptance of cryptocurrencies, creating new opportunities for growth and innovation.