The team at Blockdaemon has shared key crypto / digital assets industry insights which aim to take a closer look at the various US Congressional actions in 2024.
Sam Kim notes in a recent blog post by Blockdaemon that their overview of recent U.S. regulatory actions on digital assets, including SAB 121 repeal efforts and the passage of FIT21, aims to provide a perspective on what this could mean for “regulatory clarity in 2025.”
The update from Blockdaemon noted that with the U.S. presidential election less than two weeks away at the time of writing, they would like to reflect on recent U.S. regulatory developments for digital assets, and how they “could be an indicator” for the year ahead.
Blockdaemon pointed out in its blog post that regardless of who is elected president, VP Kamala Harris or former President Donald Trump they are optimistic that 2025 will provide “more regulatory clarity for digital assets.”
Blockdaemon also mentioned in its update that reaching a Congressional consensus on a “regulatory approach for digital assets has been a challenge.”
Blockdaemon further noted that some Congressional members were proponents of a regulatory framework, while others believed “none was needed.”
The blockchain-focused firm also shared that any Congressional action required bipartisan approval. No single party had “sufficient votes to pass legislation alone.”
In May of 2024, the Senate and the House of Representatives unexpectedly took “bipartisan action to repeal” the Security and Exchange Commission (SEC) Staff Account Bulletin 121 (SAB 121).
As explained in the update from Blockdaemon, SAB 121 required financial institutions to categorize “digital assets as a liability on their balance sheets, imposing complex disclosures and a corresponding holding of assets.”
This effectively made it “impractical for financial institutions to custody digital assets.”
Not surprisingly, no financial institutions “entered the custody market, despite decades of experience custodying billions of dollars worth of customers’ assets.”
The update from Blockdaemon further noted that “meant less competition and thus less choice for customers.”
The blog post by Blockdaemon added that “repeal of SAB 121 marked a necessary and desired change. Unfortunately, the U.S. president vetoed this repeal, and SAB 121 remains in force. Nonetheless, this Congressional action was a promising step in the right direction.”
In late May 2024, the House of Representatives “overwhelmingly” passed the Financial Innovation and Technology for the 21st Century Act (FIT21).
As stated in the update from Blockdaemon, it was an “unprecedented action by the House to pass a comprehensive digital asset regulatory framework. Members from both political parties enacted this bipartisan bill.”
FIT21 clarified the responsibilities and “oversight” of the SEC and the Commodity Futures Trading Commission (CFTC).
It defined when a digital asset was a commodity and “when it was a security.”
Blockdaemon also noted that it “provided certain exemptions from registration under the Securities Act of 1933, rules for sales in secondary markets, and new regulations for digital assets intermediaries.”
This would effectively repeal SAB 121, paving the “way for financial institutions to custody digital assets.”
Blockdaemon also stated that FIT21 is currently with the Senate.
The Senate has not yet acted on it, but that “doesn’t indicate a lack of interest.”
The Senate is likely delaying its review until “after the presidential election, when the new administration takes office.”
In contrast to the 2020 presidential election, digital assets have become a primary “issue for this year’s candidates. SAB 121 and FIT21 reflect Congress’ increasing interest.”
Moreover, perhaps due to recognizing the “negative impact of SAB 121, last month the SEC provided the Bank of New York an exemption to SAB 121.”
The blog post also noted that it is widely “expected that other financial institutions will seek and receive similar exemptions, effectively repealing SAB 121.”
As mentioned in the update, this adds further “evidence of a changing regulatory climate.”
As stated in the blog post by Blockdaemon, next year signals to be “a year when we may finally see a regulatory framework for digital assets.”
According to the update, it is likely the Senate will “pass a version of FIT21, and, with strong bipartisan support, the president will approve it.”
Blockdaemon concluded that this will bring the U.S. to the fore in “leading the next wave of innovation, while thoughtfully balancing consumer risk.”