It looks like there are plenty of banks out there that want to thin the line between themselves and crypto. They have digital currency plans in the mix and they’re ready to act on them, but the Securities and Exchange Commission (SEC) is allegedly getting in the way.
The SEC Is Back to Its Old Tricks
The SEC has recently released new accounting guidance that has made crypto development much harder on the side of traditional finance. According to the new rules, any bank or institution that provides custody services for crypto – in other words, they’re holding digital assets for their customers – need to account for the assets in question as liabilities on their balance sheets and thus inform all respective customers of the risks that come with crypto.
As a result of the new guidance, many lenders consider holding crypto tokens to be too capital intensive. This would mean that there are several banks and financial institutions out there looking to engage in crypto custody and related services that are now probably going to rescind their initial plans. Thus, the mainstream status that crypto assets could have potentially garnered through the aid of banks is going to be null and void.
Right now, banks are only required to hold cash against their balance sheet liabilities. In a recent string of testimony statements, Gary Gensler – the head of the SEC – explained:
Given that most crypto tokens are securities, it follows that many crypto intermediaries – whether they call themselves centralized or decentralized (e.g., defi) – are transacting in securities and need to register with the SEC in some capacity… Traditional financial intermediaries have expressed an interest in providing services to investors in the crypto market, and to do so in compliance with time-tested investor protection rules. Existing crypto security intermediaries need to do so in compliance with investor protection rules as well. All intermediaries in our capital markets deserve to compete – and comply – on a fair playing field.
Why Does the Agency Make Things So Hard?
One could argue that it has been the SEC’s goal all along to make things very difficult not only for crypto, but for those looking to cash in on crypto or get involved in the growing market. For example, more than 15 companies over the past few years have submitted applications for bitcoin-based exchange-traded funds (ETFs). The difference between these ETFs and those that are available now is that they would rely on spot trading rather than futures technology.
The SEC has turned down each of those applications, thus heightening the anger and disappointment of representatives like Perianne Boring, who runs the Digital Chamber of Commerce. She recently came out and said that the SEC is simply answering to a larger political agenda rather than giving these applications their due time and consideration.
