Enforcement to Endorsement: Digital Asset Executive Order and SAB 121 Rescission
In Short
The Situation: President Trump signed an executive order ("EO") titled "Strengthening American Leadership in Digital Financial Technology" that signals a radical shift in the federal government's posture towards digital assets and the crypto sector. That same day, the Securities and Exchange Commission ("SEC") staff rescinded Staff Accounting Bulletin ("SAB") 121, accounting guidance related to crypto assets that SEC staff had issued in 2022.
The Result: Under the EO, relevant agencies will be required to evaluate existing regulations and provide recommendations on whether to rescind or modify those regulations. With the rescission of SAB 121, companies will no longer be required to automatically book digital assets they hold on behalf of others as liabilities or make certain disclosures about those assets.
Looking Ahead: These moves, coupled with the SEC's announcement of its new crypto asset task force, signal a rapid, rules-based, and pro-digital asset shift under the Trump administration. Companies in the space should evaluate how they can position themselves to adapt to expected regulatory changes as well as how they may be able to expand or adjust their operations accordingly.
On January 23, 2025, President Trump signed an executive order "to promote United States leadership in digital assets and financial technology while protecting economic liberty." The EO revokes President Biden's EO on Ensuring Responsible Development of Digital Assets. It also articulates the United States' significant interest in promoting the development of vibrant and secure digital asset technologies and markets and therefore establishes a Working Group on Digital Asset Markets, within the National Economic Council to develop and oversee government policy related to the crypto sector.
That same day, the SEC staff rescinded SAB 121, issued by the SEC under the Biden administration, a bulletin that required financial companies custodying crypto on behalf of customers to book the assets as liabilities. Since its adoption, SAB 121 had been criticized by supporters of the digital asset economy.
The EO sets forth as official policy: (i) the protection of access to public blockchain networks, mining and validating projects, and self-custody; (ii) the promotion of the sovereignty of the U.S. dollar through the development of dollar-backed stable coins; (iii) protection of open access to banking services; (iv) the provision of clear and technology-neutral regulations; and (v) prohibiting development of Central Bank Digital Currencies ("CBDCs") in the U.S. and abroad.
The Working Group will be chaired by a "Special Advisor for AI and Crypto" and will include key federal agencies such as the SEC, the Commodity Futures Trading Commission, the Treasury Department, and the Justice Department. However, the Working Group notably omits the Federal Reserve, which may signal the Trump administration's desire to ensure it has policy control and to emphasize its opposition to a CBDC. The group is tasked with making regulatory and legislative proposals to advance the order's policies within 180 days, as well as considering the creation of a national digital asset stockpile "potentially derived from cryptocurrencies lawfully seized by the Federal Government."
Notably, the EO requires relevant agencies to identify all regulations, guidance documents, orders, or other materials that impact digital assets within 30 days. It then requires the agencies to, within 60 days, recommend whether they should be rescinded or modified—culminating in a final report.
The rescission of SAB 121 by the SEC staff follows a legislative attempt in 2024, which received bipartisan support in passing the U.S. House and Senate, but was vetoed by President Biden. Rescinding SAB 121, together with establishing a new digital asset task force to study its regulation of digital assets, is an early indication that the SEC, in particular, may use the EO's mandate to swiftly change course on digital assets. By requiring firms that took custody of customer digital assets to account for those assets as if they were owned by the custodian and not by the customer, SAB 121 had a chilling effect on the uptake and use of digital assets. Among other reasons, this is because digital asset custodians were required to disclose to customers that the customer's digital assets could be treated as part of the custodian's bankruptcy estate in the event of the custodian's failure.
Taking the place of SAB 121's requirements, the SEC staff now instructs digital asset custodians in new SAB 122 to "consider existing requirements to provide disclosures that allow investors to understand an entity's obligation to safeguard crypto-assets held for others." In practice, this may allow companies to utilize accounting standards such as GAAP contingency rules and IFRS guidelines.
Three Key Takeaways
- Together, the EO and SAB 121's rescission are early signals of the Trump administration's interest in fostering U.S.-based developments in the digital asset industry and a clear change in direction from the Biden administration by promising to provide clear rules of the road for crypto sector participants.
- SAB 121's rescission means financial services companies may be more willing to custody digital assets since they may not need to automatically book such assets as their own liabilities.
- Industry participants should closely watch what regulatory changes the Working Group recommends, consider ways that they can be involved in this new regulatory process, and evaluate ways in which new, less restrictive regulations may impact their operations and provide new opportunities for expansion.
