The U.S. Securities and Exchange Commission Rescinds Cryptocurrency Accounting Rules

On January 23, 2025, the U.S. SEC revoked accounting guidance SAB 121, introduced in 2022. This guidance required companies holding customers’ cryptocurrencies to record them as liabilities, increasing compliance burdens. Its revocation marks a policy shift under President Trump’s administration and is seen as a significant step forward for the cryptocurrency industry. The decision also benefits banks, enabling them to safely provide custody services for digital assets. SEC Commissioner Hester Peirce, a leader of a new crypto task force, supported this move. The decision could reduce barriers for traditional financial institutions, improving accessibility for investors while maintaining a watchful regulatory stance.

Explanation and Impact

This decision is vital for cryptocurrency investors and the broader industry. By easing compliance requirements, businesses and banks can offer custody services more freely, potentially increasing the adoption and safety of cryptocurrency investments. It also signals a more accommodating approach from regulators, which may attract more institutional involvement in the space. However, cryptocurrencies remain volatile and risky, so investors should proceed cautiously and evaluate their financial goals and tolerance for risk.

Explanation for Beginners

This news makes it easier for companies, especially banks, to safely store cryptocurrencies like Bitcoin or Ethereum for their customers. For someone new to investing, this is good news because it means safer and more reliable options might become available for storing and managing your digital assets.

Think of cryptocurrency like digital gold—it has value, but you need a secure place to keep it. If more banks and financial institutions start offering services to store your “digital gold,” it’s like having more safe and trusted vaults to choose from. This can make cryptocurrency feel less risky and more approachable for beginners.

However, even though this is a positive development, it doesn’t mean cryptocurrency prices will always go up or that the risks are gone. Cryptocurrency prices can be unpredictable, like a roller coaster. It’s important to only invest money you can afford to lose. Start small—imagine dipping your toes in a pool before jumping in—and learn as much as you can about how cryptocurrencies work and what affects their prices.

Also, diversify your investments. Just like you wouldn’t spend all your savings on one type of stock or asset, you shouldn’t put all your money into one cryptocurrency. Look for trustworthy platforms to buy and store your digital assets, and keep up with reliable news to make informed decisions. By taking these steps, you can explore cryptocurrency investing with more confidence and less stress.