On May 16, 2024, a majority of lawmakers in the United States Senate passed a Congressional Review Act (CRA) to review the Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 121 (SAB 121).
U.S. Senators passed H.J.Res. 109 with 60 to 38 votes, an exceptional rate for the U.S. Congress.
In addition to the outstanding support for H.J.Res. 109, the vote was highly bipartisan, 51-49 in favor of Democrats. According to Senator Cynthia Lummis, the vote represented a new milestone as it was the first time that a session of Congress passed a “standalone crypto legislation.”
But prior to the House of Representative’s vote on the bill, President Biden had threatened to use his executive power to veto if there was a resolution to overturn the SEC policy.
The White House said it “strongly opposes” members of the House of Representatives’ efforts to disrupt the SEC’s measures “to protect investors in crypto-asset markets and to safeguard the broader financial system.”
So will he now carry out the threat, despite the mutiny from Democrats and with Presidential candidate Donald Trump subsequently coming out as pro-crypto? Around one-third of threatened vetoes in prior administrations were never carried out, so the threat alone does not mean a veto is a done deal.
Significant support on both sides for crypto bill
Founder and CEO of the blockchain trade association Digital Chamber, Perianne Boring, highlighted how relevant it was that Congress passed H.J.Res. 109 with such solid support.
Quick take on our historic day for #crypto policy in Washington, DC. Congress voted to nullify SAB 121. pic.twitter.com/qMU3fVBkQD
— Perianne (@PerianneDC) May 16, 2024
Boring explained how the controversy related to SAB 121 caused 21 Democratic Senators to break rank and support the bill, concluding with 12 Democratic Senators’ votes.
She highlighted how Chuck Schumer was among the supportive Democratic Senators’ votes. Boring pointed out as a relevant fact that “Schumer is the Senate majority leader and the second most powerful person in the country, only second to President Biden."
The former congressional staffer and television anchor described how the Democrats’ support should have felt like a “watershed moment” for the Biden administration. She claimed that Schumer’s support could force the White House to “rethink its strategy and position.” In her opinion, “the tides are turning for crypto in Washington.”
The Biden administration may feel pressure beyond the political sphere as the crypto community is not the only sector wishing Biden would sign the H.J.Res. 109. The American Bankers Association has openly urged “President Biden to move quickly to sign this resolution into law to help protect American consumers.”
The banking sector has an economic incentive to offer custody services for cryptocurrencies, as the banks also want their piece of the pie from the ongoing retail crypto adoption.
The ball is in the court of the White House
After the H.J.Res. 109 broad support, the Biden administration has a complex decision to make.
Biden will have to assess if it’s worth vetoing the H.J.Res. 109 as it could risk opening an inner conflict in his party. Is SAB 121 so essential for the SEC to unlock an inner battle within the Democrats when the next U.S. elections are so close? Biden may have to weigh the pros and cons.
Patrick Kirby, policy lead for Crypto Council for Innovation, explained to Cointelegraph how “the President has 10 days (excluding Sundays) to sign the resolution into law, allow this to become law without signature, or veto” it.
An ace up Biden’s sleeve is to “pocket veto” SAB 121; this can occur if Congress is not in session to receive either the signed or vetoed bill. Fox journalist Eleanor Terret explained how the president could give his stamp of disapproval and pin the resolution, ultimately not turning into a law on Congress as they aren't in session. Terret believes that it could be "used as a strategic way to not get too much political backlash.”
However, Biden may take into account Donald Trump’s alleged shift toward a favorable crypto regulation stance for the crypto industry. Trump may have identified a loophole that he can leverage to cast away support and votes from Biden for the upcoming election on Nov. 5, 2024. As the SAB 121 challenges have unfolded, Trump’s strategy has swiftly transitioned from anti-Bitcoin to positioning himself as the pro-crypto presidential candidate.
Kirby explained how if the President finally decides to veto H.J.Res. 109, Congress could try to override it. For it to be successful, it would require a “two-thirds majority of those voting in both chambers of Congress."
The SEC can solve Biden’s dilemma of veto by revoking SAB 121
Biden’s difficult dilemma of whether or not to fulfill his veto threat may have another solution that would greatly benefit his administration.
The SEC could decide to remove SAB 121 to avoid forcing Biden to decide whether to apply his veto. Republican Wiley Nickel expressed how SEC president Gary Gensler has the key to ending the “political football” created by the SEC’s controversial cryptocurrency regulation measure.
If the SEC removed SAB 121 from its policy, Biden wouldn't have to decide whether to veto the overturn from Congress.
SAB 121 has also received criticism within the regulatory agency. On May 17, 2024, commissioner Hester Pierce explained at the Blockchain Summit, hosted in Washington by The Digital Chamber, how she felt “bad” regarding the SAB 121 policy.
Pierce explained that since it was launched, the regulatory agency has received much feedback, claiming “the fact it doesn’t work" and how “it keeps people out of the industry who would otherwise come into."
SAB 121 requires listed companies, including banks, to record crypto assets as both assets and liabilities on the balance sheet. Many lawmakers and industry leaders have criticized the SEC measure, saying it could stifle innovation as this practice is contrary to the conventional treatment of assets under custody, which usually does not appear on the balance sheet as they belong to the client.
Pierce said she believes “it’s positive” that “Congress is weighing in" on crypto regulatory issues. For policy lead Kirby, this vote is a win for consumers looking to safely custody their digital assets, a win for financial innovation, and a “clear signal that major policy changes should go through the proper regulatory and legislative processes.”
Biden, as the SEC has the ball in their court, the next move is on them.