Banking on Bitcoin: How SEC's Elimination of SAB 121 Transforms Crypto Custody

The U.S. Securities and Exchange Commission has taken a decisive step that reshapes the landscape for cryptocurrency adoption in traditional finance. By withdrawing Staff Accounting Bulletin No. 121 (SAB 121), regulators have eliminated one of the most restrictive barriers preventing major financial institutions from offering bitcoin and digital asset custody services. This policy reversal, coming in early 2026, marks a turning point in how government agencies approach crypto integration within the banking system.

The Problem That SAB 121 Created for Banks

When SAB 121 was introduced in March 2022, it imposed a significant accounting requirement that discouraged banks from entering the crypto custody space. The rule mandated that any bitcoin or crypto holdings that institutions maintained for clients had to be recorded as liabilities rather than assets on balance sheets. This accounting treatment created substantial operational complexity and financial reporting challenges. For many banks weighing the costs and benefits of offering these services, the regulatory burden made the business case unworkable. The restriction effectively pushed major financial institutions away from a growing market segment, leaving custody primarily to specialized crypto firms.

Industry participants voiced strong objections to this approach. SEC Commissioner Hester Peirce became one of the most vocal critics, describing the regulation as a “pernicious weed” in April 2023. Her criticism underscored how the accounting requirement created artificial impediments rather than addressing genuine prudential concerns.

Why the Withdrawal Matters Now

The decision to rescind SAB 121 arrived following recent leadership transitions at the SEC. With Gary Gensler’s departure and Mark Uyeda’s appointment as acting chair, the agency has signaled a new direction in crypto policy. The removal of this accounting obstacle coincides with the SEC’s acknowledgment that past regulatory approaches relied too heavily on enforcement actions and reactive measures. The agency recognized that these methods often employed untested legal theories and created unnecessary friction in the market.

Uyeda has already moved to establish a crypto task force, led by Peirce, tasked with developing clearer and more practical regulatory frameworks. This proactive stance contrasts sharply with the previous administration’s approach.

The Path Forward for Financial Institutions

With SAB 121 now eliminated, the structural barriers to banking sector participation have been substantially reduced. Major financial institutions can now incorporate bitcoin and crypto custody into their service offerings without the accounting penalties that previously deterred them. Analysts expect accelerated expansion in this area as banks move to capitalize on client demand and competitive pressures.

This development represents a significant milestone in bringing digital assets into mainstream financial infrastructure. As custody services become more integrated into conventional banking, bitcoin moves closer to the level of institutional acceptance and regulatory clarity that enables broader adoption.

The shift also positions the U.S. financial system to better compete in the growing digital asset ecosystem, potentially attracting more institutional capital into the crypto market as barriers to entry decline.