Why The Repeal of SAB121 matters to Bitcoin.

The repeal of Staff Accounting Bulletin (SAB) 121 in the United States is a major step toward global Bitcoin adoption, with implications that extend far beyond American borders. While this regulatory change primarily affects U.S. financial institutions, it sets a precedent for other jurisdictions, including Australia, as banks and regulators worldwide take note of Bitcoin’s increasing legitimacy within traditional finance. By eliminating an artificial barrier that prevented U.S. banks from offering Bitcoin custody services, this repeal accelerates institutional adoption, reinforcing Bitcoin’s status as a legitimate financial asset rather than a speculative tool.

For Australians, this development signals a shift in how Bitcoin is perceived at an institutional level. While Australian banks have so far been hesitant to offer Bitcoin custody, partly due to regulatory uncertainty, the global financial landscape is evolving. As major U.S. banks integrate Bitcoin into their balance sheets, lending markets, and savings products, pressure will mount on Australian financial institutions to follow suit. The removal of SAB 121 also challenges outdated narratives about Bitcoin, including the idea that its only function is speculative trading. With banks now able to offer Bitcoin-backed financial products, such as interest-bearing accounts and collateralized loans, the need to sell Bitcoin to realize gains diminishes, strengthening its role as a store of value.

Australia has already established a regulatory framework that allows banks to provide Bitcoin custody services, but few institutions have taken the leap. The repeal of SAB 121 could serve as a catalyst for Australian banks to reconsider their stance, especially as demand for institutional-grade Bitcoin services grows. Just as Australia followed global trends in the development of exchange-traded funds and digital asset regulation, it is likely that the integration of Bitcoin into traditional banking will soon become a reality. The shift in U.S. policy marks a turning point, not just for American investors but for the broader global financial system, pushing Bitcoin closer to widespread institutional acceptance and long-term stability.

The recent repeal of Staff Accounting Bulletin (SAB) 121 marks a major shift in Bitcoin’s regulatory landscape, clearing a path for institutional adoption in the US that was previously obstructed. For years, this SEC-imposed rule made it difficult for U.S. banks to offer Bitcoin custody services by requiring them to classify Bitcoin held on behalf of customers as both an asset and a liability on their balance sheets.

SAB 121 made it unfeasible for banks to hold Bitcoin because it imposed an accounting requirement that treated customer Bitcoin holdings as both an asset and a liability, significantly increasing financial and regulatory burdens. Normally, banks custody assets such as stocks, bonds, and commodities off-balance sheet without having to record them as liabilities, but SAB 121 unfairly singled out Bitcoin, requiring banks to hold additional capital reserves against these liabilities. This meant that banks would have to allocate large amounts of capital, often in the form of U.S. Treasuries or other liquid assets, to offset the reported liability, making Bitcoin custody an expensive and inefficient business. Because banks operate under strict capital efficiency rules, the costs associated with complying with SAB 121 made Bitcoin custody unprofitable, removing any financial incentive for banks to offer such services. Additionally, the rule created an inconsistent regulatory framework where Bitcoin was treated differently from other custodial assets, further discouraging institutions from integrating Bitcoin into their financial services. By requiring banks to set aside significant capital against Bitcoin holdings, SAB 121 created an artificial barrier to Bitcoin adoption in traditional finance.

Now that SAB 121 has been rescinded, banks can legally custody Bitcoin, opening new opportunities for financial institutions to incorporate it into their offerings and paving the way for Bitcoin to become a mainstream financial asset.

Beyond facilitating institutional adoption, the removal of SAB 121 challenges one of the most persistent criticisms of Bitcoin—the so-called “Greater Fool” theory. Critics argue that Bitcoin lacks intrinsic value and that its only purpose is to be sold to a greater fool at a higher price. However, this perspective fails to explain why major financial institutions are now positioning themselves to hold Bitcoin on their balance sheets and develop financial products around it. If Bitcoin were merely speculative, why would banks seek to integrate it into their portfolios, offer Bitcoin-backed loans, or create interest-bearing accounts for Bitcoin holders? The repeal of SAB 121 demonstrates that Bitcoin is more than a speculative asset; it is a legitimate financial instrument that institutions now recognize as valuable in its own right.

The shift in regulatory policy does more than just expand adoption. It redefines Bitcoin’s financial role, transforming it from a passive store of value into an income-generating asset. With banks now able to custody Bitcoin under standard accounting rules, yield-bearing Bitcoin accounts—such as those already offered by institutions like Xapo Bank—are set to become more common. This creates a fundamental shift in the incentives for Bitcoin holders. Rather than needing to sell Bitcoin to realize gains, they can now earn a return while maintaining ownership of their holdings. This development ensures that Bitcoin’s role in the financial system evolves from a speculative investment into a fully integrated asset that provides both security and financial utility.

SAB 121, originally introduced by the SEC in March 2022 under the leadership of Gary Gensler, imposed unique and restrictive accounting requirements on banks that wanted to provide Bitcoin custody services. Unlike other custodial assets such as stocks, bonds, or even gold, Bitcoin was classified in a way that required banks to record it as both an asset and a liability. This increased regulatory burdens and created financial disincentives for banks to offer Bitcoin-related services. The SEC justified this requirement by arguing that Bitcoin presents unique risks, including technological vulnerabilities and the absence of traditional federal protections like FDIC insurance. However, this reasoning was inconsistent with the treatment of other financial assets, as banks routinely custody foreign currencies, commodities, and securities without being forced to list them as liabilities. The result was a policy that unfairly singled out Bitcoin, preventing it from being integrated into the traditional financial system and forcing institutions to remain on the sidelines while unregulated entities dominated the Bitcoin custody market.

The repeal of SAB 121 on January 23, 2025, under Acting SEC Chairman Mark Uyeda, removes these restrictions and finally allows banks to custody Bitcoin like any other financial asset. This regulatory shift aligns Bitcoin custody with standard accounting principles under U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), ensuring that institutions can now assess and manage Bitcoin-related risks using established financial frameworks. The change also coincides with broader policy shifts, including a recent executive order from President Trump establishing a working group to create a federal framework for digital asset regulation. Rather than treating Bitcoin as an anomaly or a financial risk, regulators are now providing a structured approach that integrates Bitcoin into traditional banking and financial markets.

This change carries significant implications for Bitcoin’s future. With SAB 121 gone, banks can now custody Bitcoin without facing punitive accounting treatment. This removes a major obstacle for large financial institutions like JPMorgan, Bank of America, and Wells Fargo, allowing them to enter the Bitcoin custody market and further legitimizing Bitcoin as a mainstream financial asset. Institutional demand for Bitcoin is expected to increase as banks integrate Bitcoin into their offerings, attracting interest from hedge funds, pension funds, and corporations that were previously restricted from holding Bitcoin under their existing financial structures. This broader adoption is likely to increase Bitcoin’s liquidity, reduce volatility, and reinforce its role as a stable asset within the global financial system.

The repeal of SAB 121 also opens the door for new Bitcoin-backed financial products. Banks are now able to develop Bitcoin savings accounts that pay interest, offer Bitcoin-collateralized loans, and create structured financial instruments such as Bitcoin-backed derivatives and exchange-traded funds (ETFs). These developments will allow individuals and businesses to use Bitcoin as a productive asset, rather than simply holding it in anticipation of price appreciation. By treating Bitcoin as a reserve asset, banks can now include it on their balance sheets alongside traditional assets like gold and U.S. Treasuries. This structural change embeds Bitcoin deeper into the financial system, increasing its credibility and cementing its status as a core financial asset.

The removal of SAB 121 not only accelerates institutional adoption but also dismantles the idea that Bitcoin is merely a speculative tool. If Bitcoin had no fundamental value beyond speculation, financial institutions would have no interest in holding it or developing revenue-generating products around it. The fact that banks are now incorporating Bitcoin into their lending and interest-bearing accounts indicates that Bitcoin is evolving into a legitimate financial instrument with long-term strategic value. The ability for Bitcoin holders to earn a yield on their holdings further undermines the need to sell, reinforcing Bitcoin’s role as a scarce asset that provides financial security without requiring liquidation.

As Bitcoin becomes more integrated into traditional finance, concerns around centralization and the concentration of Bitcoin custody in large financial institutions must be addressed. One of Bitcoin’s core principles is financial sovereignty, which allows individuals to hold their own private keys and transact without reliance on third parties. As banks move into Bitcoin custody, the risk of centralized control and potential rehypothecation increases. If financial institutions lend out more Bitcoin than they actually hold, as occurs in fractional reserve banking, it could create systemic risks and lead to liquidity shortages. Additionally, regulatory overreach could introduce new threats, such as the potential for Bitcoin seizures or restrictions on withdrawals.

Mitigating these risks requires a balance between institutional adoption and maintaining Bitcoin’s decentralized nature. Self-custody solutions, such as hardware wallets and multi-signature security, will remain critical for individuals who wish to retain direct control over their Bitcoin holdings. In-kind redemption mechanisms for Bitcoin ETFs, such as the proposal from BlackRock, can also help prevent fractional reserve practices by ensuring that Bitcoin-backed financial products hold actual Bitcoin rather than synthetic claims. Decentralized banking alternatives, including Bitcoin-native financial services, may also emerge as a way to provide yield and lending services without relying on traditional banks.

The repeal of SAB 121 represents a milestone in Bitcoin’s integration into mainstream finance, making it easier for banks to custody Bitcoin, offer financial products, and provide yield-bearing accounts. At the same time, the Bitcoin community must remain vigilant to ensure that Bitcoin’s decentralization and self-sovereign qualities are not compromised. With institutions now recognizing Bitcoin as a valuable financial asset and integrating it into their balance sheets, Bitcoin’s transformation from a speculative investment into a foundational component of the global financial system is well underway. The ability to earn income on Bitcoin holdings eliminates the need to sell, reinforcing its position as a long-term store of value. Instead of being a financial tool that must be liquidated to realize gains, Bitcoin is becoming an income-generating asset that can be held indefinitely, ensuring its continued relevance as the most important monetary innovation of the 21st century.