Navigating the Future of Crypto Custody: President Biden's Bold Move

Recognising the game-changing nature of the situation, President Joe Biden vetoed H.J.Res. 109 – resolving that the Securities and Exchange Commission’s (SEC) policy on how banks should handle customers’ crypto-assets ‘shall have no force or effect’. Congress had adopted the resolution in response to a dispute regarding investor protection and the functioning of the banking and crypto industries. But Biden disagreed, freezing the situation and blocking Congress’s attempt to regulate cryptocurrency trading. What implications does this move have? How did we get here?

Understanding the Veto: A Closer Look

The resolution H.J.Res. 109 was brought up but ultimately vetoed. If enacted, it would have overturned the SEC’s Staff Accounting Bulletin 121 (SAB 121), which requires banks to account for customers’ crypto as liabilities. The guidance is derived from a pro-investor protection stance – after all, amid the collapses of once high-flying crypto firms such as FTX – but it has been met with some resistance, with banking groups arguing that it makes it too costly to handle crypto.

The President’s Standpoint: Protecting Consumers and Investors

Biden’s own statement emphasised that the Resolution ‘would unnecessarily hamstring the SEC’s ability to put in place commonsense guardrails and address the next wave of challenges’. His administration is ‘committed to protecting consumers and investors from crypto-related risks’ while also pursuing ‘an aligned and robust digital asset policy focused on ensuring responsible innovation within the financial and crypto sector’.

Bipartisan Tensions and Support Dynamics

Remarkably, the resolution garnered bipartisan support, with almost as many Democrats supporting the measure as Republicans. This bipartisan development points to the nuanced cross-party views of the future of cryptocurrency regulation and the question of balance between innovation and consumer protection.

Industry Opposition and Calls for Reconsideration

Stand With Crypto, a crypto-advocacy group, and the American Bankers Association have robustly opposed SAB 121. As the former organisation puts it: ‘Far from reinforcing the financial system, SAB 121 would prevent the very legislative mandate of these regulated banking organisations to offer digital asset custody at scale in the first place – ultimately impacting the future potential for innovation and growth within the industry as a whole.’ Industry groups wrote an open letter to the Biden administration opposing SAB 121.

The Path Forward: Opening Doors to Dialogue and Development

And despite the veto, this announcement by Biden opens the door for continued engagement and cooperation on crypto regulation. ‘We’re ready to engage with Congress on a comprehensive and balanced regulatory framework for digital assets and payment system innovation that protects consumers and investors, promotes financial stability, and supports responsible innovation,’ Biden’s announcement states. ‘America must and will remain the world leader in financial services while promoting responsible crypto innovation and protecting against risks.’

An Open Discussion on Crypto Custody and Regulation

From the behind-the-scenes drama surrounding President Biden’s veto of the crypto custody bill, it’s clear that finding the right balance between crypto assets, the banking system and regulatory regimes will be a complex and polarising process. The ‘what now?’ question around what happens in the space of digital asset custody and regulation is incredibly important, to prevent regulatory barriers from impeding innovation, and to foster a sensible, safe ecosystem for all. It’s a debate that sparks rich dialogue on where finance is headed, where technology fits into the world, and how to best harness the potential of digital currencies.

Exploring the Concept of 'Open' in Crypto Dialogues

The word ‘open’ appears all too often in discussions regarding cryptocurrency and the regulation thereof: it is nearly impossible to avoid its presence which permeates the entire discourse in the space with all its meanings of transparency, accessibility and forward-thinking approach to the future of digital finance. Whether we are referring to the recent veto by the US president Biden, or the broader debate on crypto custody, the word ‘open’ reflects readiness to enter into discussion, explore and find ways to overcome all the challenges relating to the safety of digital money, consumer protection and the evolving future of cryptocurrency within an open ecosystem of cryptocurrencies, securities and our day-to-day fiat money. This contribution is made in a personal capacity and does not necessarily reflect the,