What are some obscure laws affecting Bitcoin reserves in the U.S.?

Obscure Laws Hindering Bitcoin Reserves: Insights from White House Crypto Council Director

Introduction: Why Bitcoin Reserves Face Regulatory Headwinds

As institutional adoption of Bitcoin accelerates, one major friction point remains: legacy laws and obscure regulations that make holding Bitcoin reserves more difficult than holding traditional assets like cash, gold, or Treasuries.

According to insights attributed to senior U.S. policy voices, including the White House-adjacent crypto and digital asset policy community (often summarized in reports from the National Economic Council, the Council of Economic Advisers, and interagency “crypto councils”), the biggest obstacles are not always the high‑profile bills in Congress. Instead, they are decades‑old rules written for a pre‑crypto world.

For crypto‑native companies, banks, and even public corporations looking to treat Bitcoin as a strategic reserve asset, these rules can determine:

• How Bitcoin appears on balance sheets
• Capital and liquidity requirements
• Tax outcomes and reporting burdens
• Whether a bank or public company can practically hold BTC at scale

Below is a breakdown of the key “obscure” legal and regulatory constraints shaping Bitcoin reserve strategies in the U.S. as of 2025.

Regulatory Architecture: How Old Rules Collide with Bitcoin Reserves

Bank Capital Rules and Custody Treatment

For U.S. banks, the most direct obstacle to holding Bitcoin reserves stems from capital and risk‑weighting rules, not outright bans.

Key constraint: In 2022, the SEC issued Staff Accounting Bulletin 121 (SAB 121), which effectively requires public companies safeguarding crypto assets for customers to:

• Record those crypto assets as liabilities at fair value
• Record a corresponding asset for the same amount

This treatment means banks providing crypto custody must hold additional capital against these “off‑balance sheet” assets, making large‑scale Bitcoin custody economically unattractive.

Why this matters for Bitcoin reserves

• Raises the cost of banks acting as primary Bitcoin custodians
• Discourages banks from offering BTC reserve products to corporates
• Pushes companies toward non‑bank custodians or self‑custody, which may raise perceived risk for boards and auditors

Prudential Guidance from Bank Regulators

U.S. prudential regulators – the Federal Reserve, OCC, and FDIC – have taken a cautious stance on bank engagement with crypto.

• Banks must obtain regulatory approval before engaging in certain crypto activities
• Bitcoin classified as a high‑volatility, high‑risk asset for capital purposes
• “Safety and soundness” reviews make it hard to treat BTC like a treasury‑style reserve

For a bank’s treasury desk, it is far simpler and capital‑efficient to hold U.S. Treasuries than to hold BTC as part of reserve management.

Accounting & Tax Treatment: Bitcoin as “Intangible” Instead of Money

GAAP Classification: Indefinite‑Lived Intangible Asset

Under U.S. GAAP, Bitcoin is treated as an indefinite‑lived intangible asset, not as currency or a financial instrument. This creates asymmetric accounting outcomes:

Downside:

• Companies must impair Bitcoin holdings if market price drops below carrying value
• Impairment hits earnings, even if price later recovers
• Upward price moves cannot be recognized in earnings until Bitcoin is sold

Upside (limited):

• Impaired carrying value can be lowered, potentially reducing future impairment risk
• Gains realized only upon sale are reflected in profit and loss

Practical effect on corporate Bitcoin reserves

• CFOs and audit committees face earnings volatility from BTC price dips
• Conservative boards avoid BTC on balance sheets due to GAAP optics
• Public companies (outside a few high‑conviction cases) hesitate to treat BTC as a long‑term treasury reserve

Table: GAAP Treatment – Bitcoin vs. Cash

Tax Rules and Reporting Frictions

The IRS treats Bitcoin as property, not currency. Key implications:

• Every sale or payment using BTC is a taxable event
• Companies must track cost basis and realized gains/losses for each transaction
• Using BTC as an operational reserve (e.g., paying vendors) becomes administratively complex

For long‑term treasury‑style reserves, property treatment is less problematic, but:

• Mark‑to‑market expectations from investors vs. realized‑gains tax accounting can diverge
• Complex reporting requirements discourage broad BTC reserve adoption among mid‑size firms

Securities & Investment Laws: When Does a Bitcoin Product Become a Regulated Security?

Bitcoin Spot ETFs vs. Direct Holdings

In 2024, the SEC approved multiple spot Bitcoin ETFs, a major step for mainstream access. However:

• ETFs are regulated securities under the ’33 and ’34 Acts
• Institutional investors can more easily hold ETF shares than spot BTC
• For corporates considering Bitcoin as a reserve asset, ETF exposure may be simpler than direct BTC custody, but:
• ETF shares introduce fund risk and management fees
• Some corporate policies distinguish between operating investments and treasury reserves, complicating ETF use

Investment Company Act Limitations

If a firm’s balance sheet becomes too heavily weighted toward Bitcoin or Bitcoin‑linked instruments, it risks:

• Being deemed an investment company under the Investment Company Act of 1940
• Facing an entirely different regulatory regime

This obscure but powerful constraint effectively discourages non‑financial operating companies from adopting extremely high Bitcoin reserve ratios.

Banking, Sanctions, and AML: The Invisible Perimeter Around Bitcoin Reserves

BSA/AML Compliance Complexity

The Bank Secrecy Act (BSA) and anti-money laundering (AML) obligations make regulated institutions wary of being seen as “crypto heavy”:

• Enhanced due diligence on crypto counterparties
• Transaction monitoring for on‑chain activity
• Pressure from regulators to avoid perceived “high‑risk” crypto exposure

For Bitcoin reserves this means:

1. Higher compliance costs for any institution offering BTC custody or reserve products
2. Boards and risk committees tempering Bitcoin exposure to avoid AML‑related scrutiny

Sanctions and Foreign Policy Layers

The U.S. has raised concerns about:

• Bitcoin use by sanctioned jurisdictions and entities
• Cross‑border flows outside traditional banking rails

While Bitcoin itself is not banned, institutions fear becoming a conduit for sanctioned flows. This results in:

• Restrictive internal policies on Bitcoin services
• Hesitation to scale BTC offerings beyond small allocations

Policy Direction: What the White House Crypto Policy Track Signals

From 2021-2024, the White House issued multiple crypto‑related documents, including:

• The March 2022 Executive Order on Ensuring Responsible Development of Digital Assets
• Reports on digital assets from Treasury, Commerce, DOJ, and other agencies
• A push toward “same activity, same risk, same regulation” for crypto vs. TradFi

While these frameworks are not explicitly anti‑Bitcoin, they:

• Emphasize risk management over innovation speed
• Encourage regulators to apply existing powers broadly to digital assets
• Do little to fix specific pain points like GAAP classification, SAB 121, or Investment Company Act issues

The net result is a patchwork environment where:

• Holding Bitcoin reserves is legal but structurally discouraged
• Large institutions prefer synthetic or ETF exposure to direct custody
• Crypto‑native firms and high‑conviction corporates shoulder the experimentation risk

Conclusion: Navigating Obscure Laws in a Bitcoin Reserve Strategy

For Bitcoin to mature as a recognized reserve asset, three areas need reform or clarification:

1. Accounting standards – Moving BTC from “intangible asset” treatment toward a more neutral, financial‑asset‑like model.
2. Bank capital and custody rules – Revisiting SAB 121 and risk weightings that make Bitcoin custody capital‑intensive.
3. Corporate and investment company boundaries – Clarifying how much BTC a non‑financial company can hold without tripping 1940‑Act issues.

Until then, institutions exploring Bitcoin reserves have to engineer around these legacy constraints by:

• Using a mix of spot BTC, ETFs, and derivatives
• Relying on specialized custodians rather than traditional banks
• Building robust tax, accounting, and compliance infrastructure to support BTC on the balance sheet

For web3 builders and crypto‑savvy executives, understanding these obscure laws is now a prerequisite to any serious Bitcoin reserve strategy in the U.S.