DC Crypto Policy Developments: Tornado Cash and SEC Bulletin Updates

Recent developments in the crypto policy landscape have sparked significant interest, particularly around the ongoing legal proceedings involving Tornado Cash and the changes to the SEC’s accounting guidelines for crypto custodians, according to a16z crypto.

Tornado Cash: Legal Proceedings Update

In a significant update from the U.S. District Court for the Western District of Texas, procedural actions have been noted in the ongoing case against Tornado Cash. Initially sanctioned by the U.S. Treasury in 2022 for alleged money laundering activities, including proceeds from North Korean cyber hacks, the case has seen various developments. In November 2024, the Court of Appeals for the 5th Circuit ruled that the Treasury had exceeded its authority, remanding the case back to the district court to determine remedies.

The district court in Texas is now preparing to reopen legal proceedings. Despite media reports suggesting a reversal of sanctions, the sanctions remain in effect until a new court order is issued. The outcome of this case could have far-reaching implications, especially considering similar ongoing litigation and the potential for the case to reach the Supreme Court.

SEC Rescinds Staff Accounting Bulletin 121

In another major policy change, the SEC has rescinded Staff Accounting Bulletin No. 121, which previously required entities safeguarding customers’ crypto assets to report them as liabilities. This directive, effective since April 2022, faced significant opposition from policymakers who argued that it was an overreach.

With the issuance of Staff Accounting Bulletin No. 122, custodians are now able to apply standard accounting principles, reflecting the true nature of custodial arrangements rather than presuming liabilities. This change is expected to make it more financially viable for banks to engage in crypto custody without the burden of additional liabilities.

The repeal of SAB No. 121 follows a bipartisan Congressional effort to overturn the bulletin, which had been vetoed by President Biden in May 2024. The new guidance aligns with industry calls for more fitting regulations that do not hinder innovation.

Executive Order on Digital Financial Technology

President Trump recently issued an executive order aimed at bolstering American leadership in digital financial technology. The order emphasizes the importance of digital assets and blockchain technology in driving innovation and economic growth. It also proposes the establishment of a national digital asset stockpile, potentially sourced from cryptocurrencies seized through law enforcement efforts.

The executive order underscores the administration’s commitment to supporting the responsible development and use of digital technologies, setting the stage for further regulatory adjustments.

These policy updates mark crucial steps in the evolving regulatory environment for cryptocurrencies, with significant implications for the industry at large. Stakeholders are advised to stay informed as these developments unfold.

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