The Securities and Exchange Commission (SEC) published Staff Accounting Bulletin No. 122 (“SAB 122”) on January 23, 2025, fully rescinding Staff Accounting Bulletin No. 121 (“SAB 121”). This move removes a major roadblock for SEC-reporting companies, effectively opening the gates for digital asset custody services in the United States and making it easier for banks to offer these services. A pivotal and long-anticipated policy shift from the new Trump Administration, it is widely considered a watershed moment for institutional adoption of crypto.
SAB 122 Relieves Custodians of Burdensome Liability Reporting
SAB 122 removes one of the biggest operational obstacles for major banks and other SEC-reporting companies by eliminating complex liability reporting requirements. Under SAB 121, custodians were to record all digital assets held for their customers on their balance sheets as liabilities at “fair value,” further increasing capital and compliance demands.
SAB 121 also required these custodians to measure and report these liabilities at the initial inception of custody and at each reporting period. Given the volatility of digital assets, this rule led to unpredictable liability swings, making risk management nearly impossible. As a result, many banks avoided digital asset custody altogether.
SAB 122 Removes Roadblocks to Banking Innovation
Another major issue with SAB 121 was its vague definition of “digital assets,” which made banks hesitant to explore blockchain technology for fear of added regulation. SAB 122 rescinds SAB 121 entirely, eliminating these concerns and paving the way for broader banking blockchain innovations beyond the custody of cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).
SAB 122 Will Accelerate Digital Asset Adoption
With SAB 121 repealed and more crypto-friendly administration in place, banks such as Morgan Stanley, Bank of America, and Goldman Sachs are already signaling a shift toward digital asset services. As these and other trusted institutions enter the space, clients who were hesitant to use newer providers will likely become more receptive to the digital asset market. This shift will expand the addressable market and reward banks that embrace digital asset services early.
Large financial institutions have already built much of the infrastructure needed to support digital asset custody through their work with tokenized real-world assets. For instance, Bank of New York Mellon (BNY) currently supports 80% of the approved Bitcoin and Ether Exchange Traded Products (ETPs) through its fund services business and has publicly indicated its intention to extend custody services to crypto. This entry by major custodians will reshape competition, reduce fees, and mitigate the concentration risk in the global crypto Exchange Traded Fund (ETF) market.
Banks Still Face Challenges
SAB 121 discouraged banks from investing in digital assets, leaving only a few institutions fully prepared to enter the market now that these restrictions have been lifted.
However, further regulatory clarity is on the horizon. SEC Commissioner Hester Pierce acknowledges that the Commission’s approach to crypto has been “marked by legal imprecision and commercial impracticality.” This signals a commitment to refining guidelines around token offerings, crypto-lending, and staking services - ultimately driving broader institutional participation and market growth.
On the operational side, banks must invest in new technology and expertise to support blockchain infrastructure.
Blockdaemon Can Help
Blockdaemon is one of the most trusted names in blockchain infrastructure. Since 2018, we’ve helped institutions such as Citi, BNY Mellon, and JP Morgan navigate the digital asset landscape. Backed by $400M in funding, we provide the tools and expertise needed for secure and scalable blockchain solutions.
Our MPC wallets and vaults secure over $2B in daily digital assets transactions worldwide. Whether you need a turnkey custody solution or a modular infrastructure to build your own, our secure APIs make integration seamless.
From staking and node services to blockchain APIs or wallets, Blockdaemon simplifies the path to digital asset adoption. Get in touch to see how we can help your institution get started and scale quickly.
