Stablecoin act gives Congress alternative to overriding Biden’s SAB 121 veto

The political costs for Congress to override President Joe Biden’s veto of H.J.Res.109 might be too high.

Congress recently voted to pass H.J.Res.109, which would repeal the U.S. Securities and Exchange Commission’s (SECs) Staff Accounting Bulletin No. 121 (SAB 121) with uncharacteristic bipartisan support.

SAB 121 requires banks to record customer crypto assets on their balance sheets as liabilities, a practice unique to digital assets. Removing this requirement would make it easier for banks to conduct business with the crypto industry.

The exceptional show of bipartisan support saw the resolution pass in the Senate with 60 votes to 38.

Despite support for the resolution in Congress, Biden vetoed the repeal, stating that “he will not support measures that jeopardize the well-being of consumers and investors.”

On X, Blockchain Association CEO Kristin Smith said Biden may be “swimming against the tide of public opinion and growing consensus in Congress.”

What options do Congress and the crypto industry have if support is so strong?

Congress has the votes to overrule Biden’s veto

While Biden’s veto presents a challenge, both chambers of Congress require a two-thirds majority to overrule it.

The House of Representatives will need 290 votes to override the veto, with the Senate requiring 66. The House comprises 218 Republicans and 213 Democrats, while the Senate has 49 Republicans, 47 Democrats and four independent senators.

Despite the crypto-friendly tendency within the Republican Party — with former President and current presidential candidate Donald Trump recently coming out as a proponent of the crypto industry — it still needs to sway several Democrats to succeed in overturning the veto.

But crypto doesn’t seem as divisive or as polarized as other issues.

In a recent episode of the Unchained podcast, Republican Senator Cynthia Lummis said the principal reason to be able to gather bipartisan support to repeal SAB 121 wasn’t because of a political accomplishment but “simply because it hadn’t gone through the proper procedure.”

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The bipartisan votes weren’t solely about a ballot for or against crypto but against not following the standard procedures.

Lummis admitted it’s tough to legislate in an almost equally divided House and Senate but said that the “good news” is that digital assets are “not a partisan subject.”

On May 22, 2024, the U.S. House approved the first digital asset legislation in U.S. history — the Financial Innovation and Technology for the 21st Century (FIT21) Act. It did so with strong bipartisan support, gathering 71 Democrats who joined 208 Republicans to pass the legislation by a two-to-one margin.

Congress has also overridden presidents’ vetoes in the past, with Donald Trump and Barack Obama both having had their vetoes overturned.

However, Congress may have more prudent options.

Stablecoin act provides an alternative

The cryptocurrency industry has only recently acquired broader support among U.S. lawmakers. The latest bipartisan vote for H.J.Res 209 and FIT21 were historical moments for the crypto community.

According to some observers, shaky support for the industry among lawmakers and the upcoming presidential elections means representatives will unlikely go to bat over a veto repeal.

Daniel McCabe, former crypto lawyer and chief compliance officer of digital payments firm Flexa, told Cointelegraph there isn’t a “realistic chance of Congress overriding Biden’s ill-conceived veto during an election year. Congressional Democrats will not want to create election risk over this issue.”

A frontal dispute against the Democratic leader months before a federal election may not be the wisest course of action.

However, McCabe mentioned that “Democrats still have the chance to pass the Lummis-Gillibrand Payment Stablecoin Act, which effectively kills SAB 121 without needing a veto override.”

The Lummis-Gillibrand Payment Stablecoin Act was introduced on April 17, 2024, and provides a regulatory framework for stablecoins.

Source: Senator Kirsten Gillibrand

It also stipulates that crypto assets held in custody by financial institutions should not be considered assets or liabilities on their balance sheets, which directly conflicts with SAB 121.

Tyler Adams, co-founder of blockchain development firm COZ, with previous experience lobbying in Washington D.C., told Cointelegraph that this could be a strategic option for Democrats, as they are “trying to walk a fine line on a topic that could cost them legislative seats and the presidency.”

Pro-crypto lobbies into action

Lummis said that some factions in both parties are still ideologically opposed to passing favorable crypto regulation.

She described how, within the Democratic party’s progressive wing, there are politicians “who are uncomfortable with assets that the government does not control.” A similar concern is also shared among the less libertarian-leaning conservatives “who struggle with that same notion” of facilitating what they see as an unknown competitor of the U.S. dollar.

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The crypto industry has begun lobbying hard to change this. Days after the veto, on June 3, 2024, Coinbase donated $25 million to Fairshake, a federal crypto-focused super political action committee (PAC) that promotes crypto-friendly candidates.

The banking lobby is also getting involved. McCabe highlighted that “it is well known that the resolution to overturn SAB 121 was supported by the big bank and digital asset sectors alike.” He believes that “pro-crypto lobbies and the banking industry could absolutely have an effect.”

The banking and pro-crypto lobbies have two options for removing SAB 121: advocating for a smooth entry of the Lummis-Gillibrand Payment Stablecoin Act or convincing lawmakers to put pressure on the SEC to withdraw SAB 121.

Both options could please Democrats, as they wouldn’t directly harm Biden’s candidacy and would dissipate the risk of a political hot potato in the run-up to the U.S. elections.

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