SAB121 Is Gone: The Biggest Shift in Bitcoin Regulation Yet?

For years, Bitcoin has been at a disadvantage compared to traditional assets like stocks, bonds, and gold. While banks could easily hold and offer financial products for these assets, Bitcoin faced unnecessary regulatory roadblocks that made institutional adoption difficult.

One of the most significant barriers was SAB121, a rule that forced banks to treat Bitcoin as a liability, making it financially impractical to custody or offer Bitcoin-backed services.

This rule disadvantaged banks compared to crypto exchanges and non-bank custodians, limiting Bitcoin's integration into mainstream finance, but now, with the repeal of SAB121, that restriction is gone.

Banks can now hold Bitcoin just like any other asset, paving the way for Bitcoin-backed loans, institutional adoption, and a more mature financial ecosystem built around Bitcoin.

Let's look at what SAB121 was and why its repeal matters.

What Was SAB121?

SAB121 was a rule issued by the U.S. Securities and Exchange Commission (SEC) that placed unfair restrictions on banks holding Bitcoin. Unlike traditional assets, which could be custodied without additional burdens, Bitcoin was classified as a liability. This classification meant that if a bank held Bitcoin for a customer, it had to offset that holding with an equal-value asset—such as U.S. Treasuries—making Bitcoin custody financially impractical.

This rule effectively discouraged banks from interacting with Bitcoin. The restriction also sent a strong negative signal, implying that Bitcoin was inherently riskier than other financial assets—despite its decentralized, transparent, and trustless nature.

With the repeal of SAB121, banks are no longer subject to these restrictions. They can now hold Bitcoin on their balance sheets without penalty, clearing the way for greater institutional participation and broader Bitcoin adoption.

Why Does This Matter?

The repeal of SAB121 is a massive change in how the financial sector can use Bitcoin. Banks can now hold Bitcoin just like other assets on their balance sheet. This change unlocks several key benefits:

Bitcoin-Backed Loans

This repeal could mark the beginning of Bitcoin-backed loans becoming more widely available for individuals and businesses holding Bitcoin. Instead of selling Bitcoin to cover expenses and triggering capital gains taxes, users may soon be able to borrow against their Bitcoin holdings through major financial institutions.

A Level Playing Field for Bitcoin

For years, banks faced regulatory disadvantages when dealing with Bitcoin. SAB121 ensured that financial institutions were discouraged from holding Bitcoin, leaving the industry dominated by crypto-native firms and exchanges. Now, banks can finally compete on equal footing, bringing Bitcoin into mainstream financial services.

More Institutional Adoption

With banks now able to integrate Bitcoin into their services, we're likely to see an expansion of Bitcoin-related financial products, which could include:

• Bitcoin savings accounts

• Integrated custody solutions for institutions and individuals

• More seamless Bitcoin transactions within traditional banking platforms 

A Shift in U.S. Bitcoin Regulation

Bitcoin companies and advocates faced regulatory uncertainty, including the risk of debanking. With the repeal of SAB121, that narrative is changing. Instead of blocking Bitcoin, financial institutions are now welcoming it into their ecosystem.

Investor and Bitcoin advocate Preston Pysh argues that positive regulatory shifts like this are more impactful than government-mandated Bitcoin adoption. A government could implement a Strategic Bitcoin Reserve, but such policies could be reversed with a political shift. In contrast, reversing that trend becomes more complicated when financial institutions integrate Bitcoin into their business models, lending, and investment strategies.

While regulations can always change, once major financial institutions invest in Bitcoin and change their business to put it on the books, their incentives align with its long-term success, which marks a major turning point in Bitcoin's relationship with traditional finance.

Bitcoin's Next Step: Everyday Spending

Bitcoin is already a store of value for many. The success of Bitcoin ETFs, the adoption by major financial institutions, and its growing market dominance all reinforce this. However, the next step is for Bitcoin to become widely used for transactions.

Until now, many people have been reluctant to spend Bitcoin, in part because exchanges and wallets can be complicated and unintuitive. However, with traditional financial institutions now able to interact with Bitcoin, users will likely find it easier to use Bitcoin for everyday transactions—just as they would with their existing bank accounts.

Instead of relying on complex, third-party exchanges, Bitcoin users may soon be able to:

• Send and receive Bitcoin directly from their bank

• Make payments using Bitcoin with traditional banking interfaces

• Take out Bitcoin-backed loans instead of selling holdings

As traditional banks start to integrate Bitcoin services, more people will become comfortable transacting in Bitcoin, moving it from a long-term investment to a currency used in daily life.

What This Means for You

If you hold Bitcoin, the repeal of SAB121 is an important milestone. First, the ability to get loans against Bitcoin instead of selling could be a game-changer. Instead of paying capital gains to benefit from their savings in Bitcoin, Bitcoin owners can take loans to finance their current needs.

Second, Bitcoin is becoming entrenched in traditional finance, and, likely, that trend won't change - this isn't a political blip but a wholesale change in how businesses can operate with Bitcoin.

Finally, the doors are now open for broader Bitcoin adoption. As banks offer more Bitcoin services, more businesses and individuals will easily access Bitcoin savings, transactions, and investment opportunities.

Bitcoin's role in finance is no longer just theoretical. It's happening now. The question is: Are you ready for what comes next?