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SEC Blocks the Path to Wealth? Banks Miss Out on Bitcoin ETF Craze, Operators and Congress Members Call for Legislative Amendment

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SEC Blocks the Path to Wealth? Banks Miss Out on Bitcoin ETF Craze, Operators and Congress Members Call for Legislative Amendment

According to a report by Bloomberg, interest groups including the Bank Policy Institute, the American Bankers Association, the Securities Industry and Financial Markets Association, and the Financial Services Forum have submitted documents to the U.S. Securities and Exchange Commission (SEC) requesting a modification of the existing guidelines.

Banks Call for Amendment to Cryptocurrency Asset Regulation

Current regulations are making it more costly for U.S. banks to custody digital assets for users, and due to certain regulatory barriers, banks are unable to enter the cryptocurrency custody business.

Their requests include:

Exclusion of Cryptocurrency Calculation Principles

  • Traditional assets recorded or transferred using blockchain technology (such as tokenized deposits) are not considered cryptocurrency.

  • Products approved by the SEC, such as spot Bitcoin ETFs with underlying tokens like BTC, are not considered cryptocurrency.

Exemption for Lending Institutions to Use Cryptocurrency as Collateral

Regulated lending institutions do not need to count held cryptocurrency as liabilities, but they still need to disclose their cryptocurrency-related activities in financial statements.

The trade alliance stated in the letter:

If bank organizations are prohibited from providing digital asset custody services on a large scale, the situation for investors, customers, and the financial system will worsen.

SEC Blocks the Way, Banks Miss Out on Bitcoin ETF Craze

Banks are primarily targeting the SEC's Staff Accounting Bulletin No. 121, which has been resisted by banks since its release in 2022, with lending institutions stating that the bulletin limits their expansion of cryptocurrency custody services due to high compliance costs.

The letter also mentioned the recent popularity of Bitcoin ETFs, with most issuers opting for custody services from companies like Coinbase, BitGo, Gemini, or Fidelity, causing banks to miss out on opportunities.

Earlier this month, Republican Congressman Mike Flood and Democratic Congressman Wiley Nickel introduced a resolution to abolish the SEC's guidance, stating that the SEC has overstepped its authority.

Republican Senator Cynthia Lummis also initiated similar legislation in the Senate. Mike Flood recently stated in an interview:

The SEC should not be making rules that affect bank custody services.

The U.S. Government Accountability Office also raised questions about the SEC's actions last year.

Analyst: Unfair Treatment of Banks

Bloomberg ETF analyst Eric Balchunas also commented on this news:

U.S. banks have relinquished a key role in Bitcoin ETFs, and the Bank Trade Alliance has written to the SEC requesting that they exclude ETFs from the broad cryptocurrency protection umbrella. I wouldn't blame them for wanting a piece of the pie; this is unfair treatment of banks.

According to sources, the Republican-led House Financial Services Committee may vote on abolishing the SEC guidance as early as this month.