US Banks Rally For Updated Crypto Guidelines As Digital Asset Prices Surge

Amidst a significant surge in cryptocurrency prices, which propelled the total crypto market capitalization to a high of $1.93 trillion on Thursday, influential interest groups are urging the US Securities and Exchange Commission (SEC) to revise accounting guidance that imposes higher costs on US banks for holding digital assets on behalf of their customers.

Banking Trade Groups Urge SEC To Revise Crypto Accounting Rules

According to a Bloomberg report, a coalition of trade groups, including the Bank Policy Institute, the American Bankers Association, the Securities Industry and Financial Markets Association, and the Financial Services Forum, sent a letter to the SEC on Wednesday outlining their desired changes. 

The existing guidance requires public companies, including banks, to treat cryptocurrencies they hold in custody as liabilities on their corporate balance sheets. Consequently, banks must allocate assets of a similar value to comply with capital requirements and protect against potential losses.

According to Bloomberg, the trade groups have requested the SEC to consider the following key changes:

1. Exclude certain assets from being classified under the broad crypto umbrella. This includes traditional assets recorded or transferred using blockchain networks, such as tokenized deposits, as well as tokens underlying SEC-approved products like spot Bitcoin exchange-traded funds (ETFs).
2. Grant regulated lenders an exemption from the current balance sheet requirement while maintaining the disclosure of crypto activities in financial statements.

The trade groups argued that if regulated banking organizations are unable to provide digital asset-safeguarding services at scale, it would negatively impact investors, customers, and the broader financial system. 

However, the SEC has defended its accounting guidance, citing the “unique risks” and uncertainties posed by cryptocurrencies compared to other assets held by banks. 

Limiting Custody Expansion?

The specific guidance in question, known as Staff Accounting Bulletin No. 121, has faced criticism from banks since its publication in 2022. 

Lenders argue that the bulletin limits their ability to expand digital asset services for customers due to the associated high costs. Consequently, banks missed out on providing custody services for recently approved Bitcoin exchange-traded funds, with Coinbase emerging as the preferred custodian for the majority of ETF issuers.

The…