Definition
Staff Accounting Bulletin 121 (SAB 121) was a guidance document issued by the SEC’s Office of the Chief Accountant in March 2022 that established an accounting treatment for entities holding cryptocurrency assets in custody on behalf of third parties. SAB 121 required any company that holds crypto assets for users — exchanges, custodians, broker-dealers — to record both a liability equal to the fair value of the custodied crypto and an offsetting asset on its balance sheet. While the SEC framed this as an investor protection measure designed to ensure that custodians’ financial statements accurately reflect their obligations to crypto holders, the practical effect was to double the regulatory capital required to provide crypto custody services, as banks and broker-dealers must hold capital against the liabilities they carry on their balance sheets. This made traditional bank custody of crypto assets economically unviable at any meaningful scale.
The guidance was issued as a “Staff Accounting Bulletin” rather than a formal rulemaking, meaning it did not go through the notice-and-comment rulemaking process required by the Administrative Procedure Act. This procedural choice was controversial: critics argued SAB 121 represented a substantive policy change that should have been subject to public comment and economic cost-benefit analysis. Supporters argued it was merely clarificatory guidance on existing accounting principles. SAB 121 was effectively reversed by Staff Accounting Bulletin 122, issued by the incoming SEC leadership in January 2025, which rescinded the guidance and allowed banks to return to standard accounting treatment for third-party crypto custody arrangements.
Key Facts
- Under SAB 121, a bank holding $1 billion in Bitcoin for customers was required to record a $1 billion liability and $1 billion asset on its own balance sheet, triggering capital requirements against the liability as if the bank were exposed to the full credit risk of the Bitcoin position.
- Major US banks including JPMorgan, Bank of America, and Goldman Sachs cited SAB 121 as the reason they could not offer custody services for tokenized assets to their wealth management and institutional clients.
- A bipartisan Congressional resolution to nullify SAB 121 under the Congressional Review Act passed the House 228-182 and the Senate 60-38 in May 2024 — one of only a handful of SAB 121 CRA resolutions ever to achieve a Senate supermajority — but was vetoed by President Biden on May 31, 2024.
- SAB 122, issued in December 2024 by the new SEC leadership under Chair Paul Atkins, formally rescinded SAB 121 and restored standard off-balance-sheet treatment for crypto custody arrangements meeting normal custodial accounting criteria.
- Crypto-native custodians such as Coinbase Custody, BitGo, and Anchorage Digital were structurally less impacted by SAB 121 because they operated as non-bank entities or trust companies with different regulatory capital frameworks.
- The Federal Reserve’s SR 22-6 guidance issued alongside SAB 121 imposed parallel requirements on state member banks, compounding the effect.
- The total “trapped” capital cost of SAB 121 was estimated at $10-15 billion industry-wide based on the total market capitalization of custodied crypto assets in 2022-2023.
Relevance to Tokenization
SAB 121 was arguably the single most significant regulatory barrier to institutional adoption of tokenized assets in the United States between 2022 and 2025. The inability of traditional banks to provide economically viable custody of digital assets — including tokenized securities — forced tokenized asset managers to rely exclusively on crypto-native custodians, which many institutional investors (pension funds, insurance companies, endowments) were unwilling or unable to use due to their own fiduciary standards and counterparty approval processes. The SAB 121 barrier effectively excluded the most trusted segment of the financial system from participating in the tokenization infrastructure stack.
The reversal of SAB 121 via SAB 122 in early 2025 immediately changed the institutional market dynamics for tokenized assets. Major custodial banks — State Street, BNY Mellon, JPMorgan — accelerated their digital asset custody programs following the rescission, knowing that the accounting treatment would no longer require holding impractical amounts of capital against custodied tokens. BNY Mellon had already begun building digital asset custody infrastructure in anticipation of the reversal, and announced expanded tokenized treasury and tokenized fund custody services in the first quarter of 2025.
For the long-term development of tokenization in the US, the SAB 121 episode illustrated how accounting guidance — a form of regulatory action below the level of formal rulemaking — can have outsized effects on market structure. The tokenization industry’s successful bipartisan effort to pass a CRA resolution, even though that resolution was ultimately vetoed, demonstrated the political coalitions that can be mobilized around digital asset regulation and laid the groundwork for the broader regulatory reform of 2025.
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