The transition from SAB 121 to SAB 122 marks a significant shift in the SEC's approach to crypto asset accounting. SAB 122 introduces clearer guidelines for financial firms handling digital assets, addressing key concerns raised by the industry about SAB 12112. The new bulletin aims to:

• Provide more flexible accounting treatment for crypto assets held in custody

• Reduce the burden on companies' balance sheets by not requiring them to list crypto holdings as liabilities3

• Offer improved clarity on how to account for different types of digital assets

• Align accounting practices more closely with the evolving nature of the cryptocurrency market4

This transition is expected to facilitate greater participation of traditional financial institutions in the crypto space, potentially leading to increased innovation and adoption of digital asset technologies5.

The SEC's transition from SAB 121 to SAB 122 is set to take effect immediately, with financial institutions and crypto companies expected to adapt their accounting practices promptly. According to the SEC's announcement, firms are encouraged to implement the new guidance as soon as practicable, but no later than the start of their next fiscal year12. This timeline allows companies some flexibility to adjust their internal processes and reporting systems while ensuring a swift transition to the updated accounting standards.

• Immediate effect: SAB 122 is active upon announcement3

• Adaptation period: Companies have until their next fiscal year to fully comply2

• Gradual implementation: Firms are encouraged to adopt new practices as soon as feasible1

The SEC has indicated that it will provide additional guidance and support to help entities navigate the transition smoothly, recognizing the potential challenges in adapting to the new accounting framework for digital assets45.

The crypto industry has largely welcomed the SEC's decision to withdraw SAB 121 and introduce SAB 122, viewing it as a positive step towards more balanced regulation. Financial firms and crypto companies expressed relief at the removal of the requirement to report customers' crypto assets on their own balance sheets, which had been a major point of contention1. The new guidance is seen as more aligned with established accounting principles, potentially easing compliance burdens for companies operating in the digital asset space2.

• Industry leaders praised the move for potentially opening doors to increased institutional participation in crypto markets3.

• Banks and financial institutions are now better positioned to offer crypto custody services, which could lead to broader adoption and integration of digital assets in traditional finance4.

• However, some experts caution that while SAB 122 provides more flexibility, companies must still ensure robust disclosure practices regarding the safeguarding of crypto assets to maintain investor confidence15.

The withdrawal of SAB 121 marks a significant shift in the regulatory landscape, closely tied to recent political changes. The repeal was led by Acting Chair Mark Uyeda, a holdover from the Trump administration, following the transition of power in the White House.12 This move came after a previous attempt to repeal the rule through a Congressional Review Act resolution was vetoed by former President Joe Biden, with the House failing to override the veto.3

The change in SEC leadership and policy direction reflects the broader political context:

• The repeal aligns with the new administration's more crypto-friendly stance, as evidenced by President Trump's executive order on "Strengthening American Leadership in Digital Financial Technology."4

• It signals a departure from the stringent regulatory approach adopted under former SEC Chair Gary Gensler.2

• The swift policy reversal underscores the impact of political transitions on regulatory frameworks, particularly in emerging sectors like cryptocurrency.56

This political shift has been welcomed by the crypto industry, viewing it as a potential catalyst for innovation and clearer, more supportive regulations in the digital asset space.7