The countdown begins after the Senate decided to overturn SAB-121. President Biden now has 10 days to respond. . .
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Cryptocurrency regulation often carries negative connotations, and there have long been concerns that the U.S. and other countries will follow China’s lead and take a similarly repressive regulatory path.
Some U.S. politicians, mainly Democrats, have been publicly expressing their dissatisfaction with the cryptocurrency sector, with major leaders including Senator Elizabeth Warren and Securities and Exchange Commission Chairman Gary Gensler. Under their influence, "Stranglehold 2.0" emerged in the spring of 2023, targeting cryptocurrency-related banks and restricting their access to banking services, with strategies similar to the original "Stranglehold". This alliance, known as the "Anti-Crypto Army," aims to slow down industry development to advance their political agenda, arguing that cryptocurrencies pose risks to consumers and lead to financial instability.
But the good news for us is – they are losing this fight.
The fact is, most sane people (including politicians) actually want improved cryptocurrency regulation so that it can be more widely adopted and fostered in the United States, rather than dominated by our adversaries like China, Russia, and others.
The fight is to keep cryptocurrencies open, just as the United States kept the Internet open. The world would be very different today if the United States had chosen a closed “internet” like China and Russia! The policies currently supported by the Biden administration are heading down this doomed path.
Last week, Biden's hardline stance on cryptocurrencies clearly exposed major flaws in his strategy, alienating him from a large number of voters, as Senate Democrats and Republicans voted 60-38 to pass the first pro-cryptocurrency bill.
The bill would repeal the unjust Staff Accounting Bulletin (SAB) 121 enforced by the Securities and Exchange Commission, which made it extremely cumbersome for banks to hold cryptocurrencies.
Understanding SAB-121
SAB 121 was issued by the U.S. Securities and Exchange Commission (SEC) on March 31, 2022, and will take effect on April 11, 2022. It regulates the way institutions record cryptocurrencies on their balance sheets. Although cryptocurrencies are clearly an asset, they are forced to record them as liabilities.
SAB 121 requires companies to report crypto assets on their balance sheets as liabilities, not assets! This classification was intended to “increase transparency” but was deemed burdensome, leading Congress and the Senate to vote to repeal it in order to support innovation and growth in the cryptocurrency industry.
Cryptocurrency has grown into a $2.5 trillion asset class. It is more ubiquitous, liquid, and accessible than ever before, further solidifying its status as an asset rather than a liability. It’s common sense…
The Senate came together to pass a bill that would overturn SAB-121 and bring common sense to our marketplace. This is important because, despite President Biden’s negative tone, the bill had overwhelming bipartisan support.
It’s not common, but it’s good to see that positive cryptocurrency adoption is bringing politicians from both sides of the aisle together.
Now comes the really interesting part.
The bill marks the first time in history that a cryptocurrency bill has reached the president’s desk. Before the Senate vote, Biden had publicly stated that he would veto the bill if it reached his desk. However, he is now facing some new pressure.
To the surprise of many, Senate Majority Leader Chuck Schumer (D-NY) publicly supported overturning SAB-121. It is clear that divisions within the party are widening.
Additionally, Biden’s upcoming opponent, former President Donald Trump, has stated that he supports the cryptocurrency market and will help foster the industry.
President Biden may reconsider his decision due to pressure from both his own party and his opponents. Especially since a recent study showed that 20% of voters in swing states believe that cryptocurrency is a key factor in helping them decide who to vote for. While we don’t have the answers yet, time is running out.
The countdown began after the Senate decided to overturn SAB-121. President Biden now has 10 days to respond.
Potential impact
There has been much speculation about what overturning SAB-121 would mean for the cryptocurrency space. First, institutions would no longer be penalized for holding cryptocurrencies, which would inherently increase demand.
On the other hand, the sudden mass adoption of cryptocurrencies has made it more accessible than ever before through Bitcoin spot ETFs. Institutions can now gain exposure to Bitcoin through channels they have trusted for decades, while also freeing up the cash margin previously required to back it as a liability.
While retail investors are important, the real big money lies with institutions. They have the potential to inject billions or even trillions of dollars into the market. In fact, some institutions have already started buying cryptocurrencies in anticipation of the future.
Overturning SAB-121 will make cryptocurrencies more popular, promoting further growth and maturity of the market. By reducing the burden of holding cryptocurrencies, this change may attract more institutional investors to the market, driving up demand and prices for cryptocurrencies. With more funds flowing in, the cryptocurrency market may usher in a new stage of growth, further consolidating its position as a mainstream financial asset.
Traditional finance and government are buying
While the fundamentals of institutional cryptocurrency regulation are changing, there is a lot of action going on behind the scenes. While there are some risks associated with institutional holdings of Bitcoin at this time, many believe the additional risk is worth taking.
Some institutions have been more public about their support than others. Rest assured that even those that aren't as public are required to disclose their holdings through quarterly 13F filings.
13F filings are quarterly reports required by the U.S. Securities and Exchange Commission (SEC) for institutional investment managers that manage more than $100 million in assets. These filings provide disclosure information that allows smaller institutions and retail investors to gain information on potential market trends.
Matt Hougan, chief investment officer at Bitcoin ETF provider Bitwise, recently shared his thoughts on the matter, saying, “I think the 13F filing for a Bitcoin ETF is extremely bullish for the long-term future of Bitcoin.” He further explained his opinion in a post that reads:
From these 13F documents, we can see that despite the risks, many institutions and governments are actively buying Bitcoin. This trend shows that they have confidence in the future potential of Bitcoin and expect to get long-term returns by making early arrangements.
Institutional participation not only increases market liquidity, but also provides support for the legitimacy and stability of cryptocurrencies. As more traditional financial institutions and governments enter the market, cryptocurrencies are expected to further consolidate their position in the global financial system.
One of the important points here is that professionals usually give a new product like Bitcoin a 6-12 month trial period before getting involved, or start testing the waters with a small amount of money in the first year. Then after the trial period, they will invest a larger amount of money.
In other words, significant investment will most likely start to flow in about 6-12 months after the ETF is approved. However, as we have said before, not everyone is willing to wait that long...
Canada’s Bank of Montreal now has Bitcoin exposure via an ETF, bringing its assets under management to $1.3 trillion Canadian dollars. BNP Paribas, Europe’s second-largest bank, has also reported Bitcoin ETF exposure, as well as insurance giant MassMutual, and Southern States Bank, a $34 billion bank with more than 300 branches.
We also saw 12 of the 25 largest U.S. hedge funds gain Bitcoin exposure, as did 11 of the 25 largest registered investment advisors, and 405 other advisors with at least $1 billion in assets.
In addition to this, Wisconsin became the first U.S. state to add Bitcoin to its balance sheet, with the state pension fund investing nearly $100 million worth of Blackstone’s IBTC and $64 million of Grayscale’s GBTC ETF.
The crazy part is that this is only the beginning. According to an earlier analysis by Matt Hougan, this should be the calm before the storm. From here on, 13F filings, adoption, and interest in Bitcoin are likely to accelerate.
If SAB-121 is officially canceled, it could very well trigger the next huge phase of adoption. Retail and institutions alike would gain unparalleled access to Bitcoin on an unprecedented global scale.
We will continue to update the community as more information becomes available. Needless to say, if this is indeed happening, now is probably the time to buckle up.
