A group of US lawmakers are seeking to repeal a regulation that prevents traditional banks and public companies from offering cryptocurrency custody.
The approval of Bitcoin spot exchange-traded funds in the US market is a significant milestone for the world’s largest cryptocurrency, and for the financial system at large. These exchange-traded funds provide investors with simpler and more regulated access to Bitcoin, while reshaping the landscape of traditional finance, bringing a new, innovative and powerful alternative asset class to the current system.
The development of Bitcoin and cryptocurrencies has been transforming the definition of money in just over a decade, generating a new form of digital money and, with it, a new generation of financial services that are more efficient, accessible, transparent and inclusive.
However, while several entities from both the traditional and digital financial worlds have been developing new projects to accelerate the integration of traditional finance and cryptocurrencies and close the existing gap, US banks are still absent in the Bitcoin ETF sector.
Despite the fact that these investment funds were approved by the United States Securities and Exchange Commission (SEC) last month, traditional banks, for the most part, remain outside this sector, mainly due to the strict regulations imposed by the SEC's Staff Accounting Bulletin (SAB) 121, on the custody of cryptocurrencies and digital assets.
In general, this rule establishes that banks that hold crypto assets must maintain one dollar of capital for every dollar they hold in cryptocurrency. This, in relation to Bitcoin ETFs, is unfeasible and represents a major limitation for banks and public companies that want to offer custody of these assets.
US lawmakers therefore want to change this rule, to give banks a genuine opportunity to provide cryptocurrency custody services to their clients and to play a leading role in the growing market for blockchain-based digital assets.
SAB 121 would have no force or effect
An resolution Signed last month by Congressmen Mike Flood and Wiley Nickel, the bill indicated that members of Congress disagree and disapprove of the SEC's SAB 121 rule. It even noted that the rule, which makes crypto custody extremely expensive for banks, to the point of being prohibitive for almost all entities, would be without force or effect.
Meanwhile, the American Bankers Association, the Bank Policy Institute and other financial-related organizations sent a letter to the SEC chairman last week calling for the reversal of SAB 121.
In bliss letterThe organizations noted that the regulations in question have posed various challenges for regulated banking organizations to provide an appropriate and secure cryptocurrency custody service to investors, instead of allowing these organizations, which are well regulated, to participate in certain activities related to the growing digital asset market.
According to the letter, “the associations have stressed that on-balance sheet treatment will prevent highly regulated banking organisations from providing a custody solution for digital assets at scale” due to the burdensome capital requirement it imposes.
The organizations stressed that SAB 121 has limited the potential of banks in the cryptocurrency market, preventing broader innovation by these entities in this technological sector.
11 Bitcoin spot ETFs were approved last month
The approval of more than a dozen Bitcoin-based cash investment funds has fueled interest among lawmakers and banking organizations to roll back SAB 121.
Currently, they are listed 11 Bitcoin spot ETFs on major US exchanges, that They hold more than 725.000 BTC, valued at over $37.500 billion. Most of these bitcoins are held by Coinbase, a regulated cryptocurrency platform in the country. However, the degree of centralization that this represents has raised concerns among several bitcoiners and, in general, in the crypto community.
While some defend the balance that this centralized platform can provide in the crypto market, others consider that the concentration of power in a single entity can represent a great risk.
The revision of SAB 121 proposed by US lawmakers could help commercial banks enter the cryptocurrency market, specifically the Bitcoin ETF sector, providing new alternatives in the digital asset investment landscape.
Continue reading: BlackRock and Fidelity Bitcoin ETFs Hold Over 200.000 BTC in Reserve
