SEC Eliminates SAB 121: A Turning Point for Bitcoin Custody Banking

The U.S. Securities and Exchange Commission has formally removed SAB 121, a regulatory obstacle that had prevented major financial institutions from offering bitcoin and cryptocurrency custody services. This policy reversal represents a watershed moment in crypto’s evolution toward mainstream finance, signaling that institutional barriers are finally beginning to dissolve.

What Was SAB 121 and Why It Created Such Friction

For nearly four years, SAB 121 stood as a controversial accounting rule that fundamentally disrupted the crypto industry’s relationship with traditional banking. Originally introduced in early 2022 under former SEC Chair Gary Gensler’s tenure, the regulation required any bank or custodian holding digital assets on behalf of customers to classify those holdings as balance sheet liabilities. This seemingly technical accounting requirement created cascading complications: it inflated reported liabilities, complicated capital adequacy calculations, and made cryptocurrency custody economically unattractive for major financial players.

The Accounting Burden That Deterred Institutional Participation

The real-world impact was straightforward and damaging. Banks faced a choice between forgoing lucrative custody services entirely or accepting unfavorable balance sheet treatments that complicated their regulatory standing. This accounting friction proved particularly expensive for large institutions navigating strict capital requirements, essentially pricing crypto custody out of traditional finance’s service menu.

The crypto industry and its allies in Congress consistently attacked the rule as misguided. SEC Commissioner Hester Peirce became its most vocal critic, memorably describing SAB 121 as a “pernicious weed” in early 2023, capturing the frustration many felt toward the arbitrary barrier blocking institutional participation.

New Leadership Brings Fresh Regulatory Approach

The policy shift accelerated following personnel changes at the SEC. When Gensler departed, Acting Chair Mark Uyeda swiftly signaled a different direction: rather than relying primarily on reactive enforcement actions and novel legal interpretations, the SEC would develop clearer, more predictable frameworks. This commitment materialized through the formation of a dedicated crypto task force under Peirce’s leadership, tasked with creating practical regulatory guidance.

The formal elimination of SAB 121 came through the issuance of Staff Accounting Bulletin No. 122, which explicitly rescinds the prior guidance. In a celebratory post, Peirce announced: “Bye, bye SAB 121! It’s not been fun,” underscoring the relief across the industry.

What Happens Now: Bitcoin Custody Goes Mainstream

With this regulatory barrier removed, major financial institutions now face a dramatically different calculus. Banks can now offer bitcoin and crypto custody services without the accounting penalty that previously made such offerings operationally burdensome. Industry observers anticipate swift action from institutional players eager to capture this emerging market segment.

The elimination of SAB 121 marks more than just a technical policy change—it represents recognition that bitcoin custody has matured from a speculative fringe service into a legitimate financial product deserving standard accounting treatment. As traditional institutions integrate cryptocurrency custody into their standard offerings, the path toward mainstream bitcoin adoption becomes increasingly tangible. What once seemed impossible under SAB 121’s constraints is now within reach for the global financial system.