Congress Weighs Options to Overrule Biden's Veto on Crypto Asset Liability Rule
Summary:
Congress faces significant political stakes in overriding President Joe Biden's veto of H.J.Res.109, a resolution aiming to cancel the SEC's SAB 121 which requires banks to record customer crypto assets as liabilities. Despite exceptional bipartisan support for the resolution, Biden vetoed it due to consumer and investor protection concerns. While Congress has the votes to overrule Biden’s veto, doing so in an election year may not be politic. A more strategic approach could be passing the Lummis-Gillibrand Payment Stablecoin Act, which would effectively nullify SAB 121 without requiring a veto override. Alternatively, lawmakers can pressure the SEC to withdraw SAB 121. Both options could shift the political risk away from the upcoming U.S. elections.
The potential political fallout for Congress in the event of overturning President Joe Biden's veto of H.J.Res.109 could be colossal. The aforementioned resolution, which aims to annul the Staff Accounting Bulletin No. 121 (SAB 121) from the U.S. Securities and Exchange Commission (SEC), has received unusual bipartisan support. This bulletin mandates banks to account for customer cryptocurrency assets as liabilities on their balance sheets, a unique requirement in the realm of digital currency. Elimination of this mandate would simplify business exchanges between banks and the cryptocurrency sector.
This rare unity across party lines allowed the resolution to receive approval in the Senate, winning 60 to 38 votes. However, even with Congressional backing, Biden chose to veto the repeal, asserting he can’t endorse initiatives that jeopardize the protection of consumers and investors.
Kristin Smith, CEO of Blockchain Association, opined on date X that Biden's resistance may run counter to public sentiment and mounting consensus in Congress. So, what's the next move for Congress and the cryptocurrency sector if their support is solid?
Withstanding Biden's veto raises a hurdle, yet the task is not insurmountable. Both the House of Representatives and the Senate need a two-thirds majority to overturn a veto.
The House would require 290 votes for the veto to be bypassed, and the Senate 66. The composition of the House consists of 218 Republicans and 213 Democrats, while the Senate is comprised of 49 Republicans, 47 Democrats, and four independent senators.
The crypto-friendly predilections of the Republican Party, highlighted recently by ex-President and current presidential candidate Donald Trump's endorsement of the cryptocurrency industry, would still require appealing to numerous Democrats to succeed in successfully vetoing the bill. Cryptocurrency does not appear to be as contentious or polarized as many other matters.
On a recent Unchained podcast installment, Republican Senator Cynthia Lummis argued that the groundwork for achieving bipartisan agreement to abolish SAB 121 was not due to a political triumph but “merely as it hadn’t undergone the correct procedure.” It was also noted that the unanimous votes weren’t strictly an endorsement or opposition to cryptocurrency but resistance to circumventing standard procedure.
As Lummis points out, it's not easy navigating legislation within a virtually evenly divided House and Senate. But optimistically, she stated that digital assets don't fall along party lines. On May 22, 2024, the U.S. House made a historical move by backing the first digital asset legislation, the Financial Innovation and Technology for the 21st Century (FIT21) Act, with widespread bipartisan support. A hard-fought 71 Democrats joined 208 Republicans to see the legislation passed by a two-to-one margin.
Although a veto has been overridden in the past under both the Trump and Obama administrations, Congress may yet have better strategies to pursue.
It wasn't until recently that the cryptocurrency sector saw amplified support on Capitol Hill. The recent bipartisan votes for H.J.Res 209 and FIT21 were notable milestones for the cryptocurrency community. However, according to several analysts, with precarious legislative backing and upcoming presidential elections, it's improbable that representatives will risk a fight over a veto repeal.
Daniel McCabe, a former crypto lawyer and current chief compliance officer for digital payments company Flexa, speculated there won't be a viable chance for Congress to challenge Biden's misjudged veto during an election year. According to McCabe, “Democrats still have an opportunity to pass the Lummis-Gillibrand Payment Stablecoin Act, which effectively nullifies SAB 121 without requiring a veto override.”
Introduced on April 17, 2024, the Lummis-Gillibrand Payment Stablecoin Act offers a regulatory framework for stablecoins. This act outlines that cryptocurrency assets held by financial institutions should not be seen as assets or liabilities on their balance sheets, a direct contradiction to SAB 121.
Tyler Adams, co-founder of COZ—a blockchain development firm—with prior lobbying experience in Washington D.C., suggested this could be a strategic move for Democrats as they try to maintain a delicate balance on a topic that could potentially jeopardize legislative seats and even the presidency.
Speaking to the pro-crypto lobby's action, Lummis suggested that some groups in both parties remain ideologically opposed to passing beneficial crypto regulations. Within the Democratic party's progressive wing, there are politicians who are uneasy with assets that the government does not have control over. A similar anxiety exists among less libertarian-leaning conservatives who grapple with the idea of facilitating what they see as an unknown competitor to the U.S. dollar.
The cryptocurrency sector has stepped up its lobbying effort to try and alter this perception. On June 3, 2024, just days after Biden's veto, Coinbase donated $25 million to Fairshake, a federal crypto-focused super political action committee (PAC), seeking to foster the promotion of crypto-friendly candidates. The banking lobby has joined in the cause, McCabe noted, saying “the resolution to overturn SAB 121 was supported by both the major banks and digital asset sectors.”
For the pro-crypto and banking lobbies, there are two possibilities – advocating for the Lummis-Gillibrand Payment Stablecoin Act or pushing lawmakers to urge the SEC to retract SAB 121. Either approach could satisfy Democrats as neither would directly impact Biden's candidacy, thereby avoiding the potential backlash of a contentious political issue in the lead-up to the U.S. elections.
Published At
6/12/2024 4:30:00 PM
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