Recently, there have been more and more topics related to cryptocurrency regulation. First, the Ethereum ETF was approved for listing by the SEC at the last minute (it has been finalized, only the S1 document is missing), and then FIT21 (21st Century Financial Innovation Act) was successfully passed. The US government's nearly 180-degree reversal of attitude has given many crypto people hope for the future market. At the same time, the market has heard that the EU parliamentary elections next week will affect the future direction of cryptocurrency regulation. What is now in front of everyone is the proposal to repeal SAB 121, which was voted through by the U.S. Senate and House of Representatives a few days ago. It is currently awaiting Biden's signature, but news has come that Biden may veto this proposal, thereby bringing uncertainty to the crypto market.


What is SAB 121

SAB 121 is simply an accounting standard for cryptocurrencies, which stipulates that when financial institutions hold cryptocurrency assets in custody, they must list them as liabilities on their balance sheets. This is actually easy to understand. For example, if we deposit cash in a bank, then in the bank's balance sheet, the customer's deposit is a liability. Similarly, cryptocurrencies held in custody by financial institutions will also be counted as liabilities of the financial institution.

What impact will SAB 121 have?

On the surface, this doesn't seem to be a problem, but in fact there are still big problems here, as follows:

There is a difference between a customer depositing cryptocurrencies in a bank and a customer entrusting cryptocurrencies to a financial institution. If a customer deposits cryptocurrencies in a bank, the bank can use the deposits to lend or invest, and pay interest and other benefits to the customer. However, if a customer deposits cryptocurrencies in an escrow institution, the escrow institution cannot use these cryptocurrencies for investment or lending, nor can it pay the corresponding interest to the customer. Because once the interest is paid, the customer's behavior is equivalent to financial management, not custody.

The meaning of custody here is that the institution helps the client to keep the funds, and the client even needs to pay custody fees to the institution. Therefore, it is unreasonable to list the custody behavior as a liability of the institution.

In addition, once an institution lists the custodial cryptocurrency as a liability, it will inevitably affect the overall health of the balance sheet of the financial institution. According to the rules, the institution also needs to come up with corresponding cash to guarantee this part of the value, which will inevitably increase the financial burden of the custodian institution. This is not a good thing for the custodian institution.

For this reason, the guidelines were met with a lot of opposition from the cryptocurrency industry at the very beginning, because it essentially prevents traditional financial institutions from entering and deploying in the cryptocurrency market and brings negative impacts to it.

Will Biden veto it?


Both the Senate and the House of Representatives have passed a vote to overturn the standard, so this matter is basically a done deal. However, there are still some variables. Biden may veto this proposal, which means that SAB 121 may continue to apply. The main reason is that there are not enough senators who vote in favor, so the bill still needs Biden's signature to pass.

So will Biden veto the proposal?

I think this may be more difficult. Here we analyze it from two aspects:

1. We all know that this year is the year of the US presidential election. It is very critical for both Biden and Trump, and their attitude towards cryptocurrency is also a key factor. According to relevant US data, approximately 8.3% of Americans own cryptocurrency (2023 data). Even so, this is a huge number, so it is also very critical for votes.

Here we can see from Trump's public support for cryptocurrency that Trump's popularity has risen some time ago. It is precisely because of this that the Biden team has made a 180-degree turn in its attitude towards the Ethereum spot ETF, which is also interpreted by the market as "political factors." Therefore, we can speculate that in order to cater to investors in the crypto camp, Biden will also agree to abolish SAB 121 this time.

2. Another factor is BTC ETF. We all know that BTC ETF is already listed and traded. Most of the approved institutions choose Coinbase Exchange as the custodian. Therefore, if SAB 121 is implemented, Coinbase may be the one that suffers the most. At the same time, the enthusiasm for ETF in the market will be much smaller. After all, the essence of institutions doing this is to make money, but if they have to bear a large sum of money, their enthusiasm will be reduced a lot. In this way, it will contradict the approval of BTC ETF listing. Such a contradictory thing is definitely unlikely to happen.

Therefore, taking all factors into consideration, whether it is to win votes or to be responsible for supporting Biden, the Biden team has no reason to agree to SAB 121 and exercise the "veto power", and the proposal to ban SAB 121 will most likely be passed.

The impact of the next market

In fact, the next market situation is a process of digesting the policies of this period. From the overall perspective of the bull market, the current market surge is definitely too early. At the same time, the market heat is also erratic, and there is no revolutionary product like 1co or DeFi to support it.

In addition, short-term policies cannot support the long-term development of the bull market. Therefore, after ETH passed the spot ETF, the market did not continue to rise, but instead consolidated the market. This is also a defensive strategy for investors to deal with the subsequent news. Only when the news is stable will OTC funds enter the market, otherwise the drastic fluctuations will stop OTC funds.

Therefore, from the current perspective, there is a high probability that the market will still be volatile in June, and there may be a slight increase.

Of course, if we look at the cryptocurrency market itself, many projects have planned to issue coins or airdrop in June, including top projects such as ionet and layerzero. This also means that the market may turn around in June, thus preparing for the next rise.

At the same time, this market adjustment started in mid-March and ended in early May. The time that has passed has basically been in place. That is to say, if there is no major negative news, the bottom has basically been confirmed. Then, based on right-side investment, there will still be a good market in the future.