The Biden administration has vowed to veto a proposed legislation, H.J. Res. 109, which aims to overturn the Securities and Exchange Commission's (SEC) Staff Accounting Bulletin (SAB) No. 121. This bulletin imposes restrictions on financial firms acting as custodians for Bitcoin and other digital assets.

The Executive Office of the US President has made it clear that if H.J. Res. 109 is presented to the President, he will veto it. The administration's stance is that the proposed legislation would disrupt the SEC's efforts to protect investors and the broader financial system.

H.J. Res. 109 is a bill introduced under the Congressional Review Act (CRA) to nullify SAB 121. This resolution seeks to eliminate the obstacles that prevent regulated financial institutions from acting as custodians of digital assets, including Bitcoin.

The push to overturn SAB 121 has been led by US Congressman Patrick McHenry, the Chair of the House Financial Services Committee. McHenry argues that the bulletin is a regulatory overreach by the SEC under the leadership of Gary Gensler. He contends that the high capital and liquidity requirements imposed by SAB 121 make it impractically expensive for banks to custody digital assets, which goes against the traditional asset custody approach.

However, the Biden administration and proponents of SAB 121 argue that the bulletin is crucial in preserving the integrity of financial markets and safeguarding investors from the instability and threats posed by digital assets. They maintain that the existing regulatory system, enforced by SAB 121, is necessary to prevent financial instability and maintain a stable market environment.

The industry reaction to the Biden administration's stance has been mixed. Cody Carbone, the Chief Policy Officer at The Chamber of Digital Commerce, has lamented the decision, arguing that SAB 121 effectively prevents trusted custodians from administering digital assets. Critics, such as Jake Chervinsky, have accused the SEC of violating the Administrative Procedures Act by issuing the bulletin without public comments or openness.

Concurrently, some Democratic-Republican Party members, like Congressmen Mike Flood and Wiley Nickel, have criticized SAB 121 and emphasized the role heavily regulated institutions should play in digital asset custody to minimize concentration risks and develop a more secure market environment.

The Biden administration's veto threat against H.J. Res. 109 underscores the ongoing tension between the crypto industry's push for greater regulatory clarity and the government's efforts to maintain control over the financial system's stability and investor protection.