SEC Revokes Controversial Crypto Accounting Rule SAB 121

The U.S. Securities and Exchange Commission (SEC) has officially repealed Staff Accounting Bulletin 121 (SAB 121), a rule that faced widespread backlash for its treatment of cryptocurrency held by banks. The revocation comes just days after former SEC Chairman Gary Gensler’s resignation and marks a significant shift in the regulatory landscape for digital assets.

SAB 121’s Criticism

Introduced under Gensler’s leadership, SAB 121 required banks holding cryptocurrencies for customers to classify them as liabilities on their balance sheets. Critics argued that this approach stifled innovation, created undue financial burdens for institutions, and misrepresented the nature of digital asset holdings.

Wyoming Senator Cynthia Lummis called SAB 121 “disastrous for the banking industry” and noted that it hindered the advancement of digital assets in the U.S. Circle CEO Jeremy Allaire echoed these concerns, labeling the rule “punitive” for institutions seeking to include crypto assets in their operations.

SAB 122 Replaces SAB 121

On January 23, 2025, the SEC introduced SAB 122, effectively nullifying the earlier guidance. The new bulletin clarified that entities should address liabilities tied to safeguarding risks under broader accounting standards, eliminating the specific requirements imposed by SAB 121.

“Entities should implement this change retroactively for annual periods starting after December 15, 2024,” the SEC stated.

SEC Commissioner Hester Peirce, a vocal opponent of SAB 121, celebrated its repeal. “Bye, bye SAB 121! It’s not been fun,” she wrote on X. Peirce had previously criticized the rule as a “pernicious weed” and argued that such significant policies should be decided by the full Commission rather than staff reporting to the chairman.

Biden’s Defense of SAB 121 and Trump’s Stance

Efforts to overturn SAB 121 in Congress were initially thwarted when former President Joe Biden vetoed a Senate resolution to rescind the bulletin in May 2024. Biden defended the rule as a product of the SEC staff’s “considered technical” judgment.

However, the recent regulatory shift aligns with the views of President Donald Trump, who returned to office in January 2025. Crypto executives like Circle’s Jeremy Allaire had expressed optimism that Trump would prioritize rescinding the guidance as part of his administration’s stance on fostering crypto innovation.

Industry Reaction

The repeal of SAB 121 is being hailed as a victory for the cryptocurrency sector. Senator Lummis expressed her approval on X, writing, “I am thrilled to see it repealed and get the SEC back on track to fulfilling its intended mission.”

The decision signals a shift toward a more collaborative and less restrictive approach to regulating digital assets, potentially opening the door for greater institutional adoption and innovation in the crypto space.