Important Educational Disclaimer
This article is for educational and informational purposes only and does not constitute financial, legal, or investment advice. Crypto regulation is evolving rapidly; rules and positions cited are current as of May 20, 2026. Crypto assets and stablecoins carry substantial risk including total loss of principal. The Savvy Investor Guide is not authorized or regulated by the US Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, or any other US financial regulator. Before making investment decisions involving crypto assets or stablecoins, consult a qualified registered investment adviser, tax professional, or attorney.
Three changes to US crypto regulation in the past 16 months have re-set the picture that retail crypto investors actually operate in. The Securities and Exchange Commission rescinded SAB 121 and issued SAB 122 in January 2025, removing the on-balance-sheet liability treatment that had made bank crypto custody economically unviable. Congress passed the GENIUS Act in July 2025, creating the first federal regulatory framework for payment stablecoins. The SEC and CFTC signed a coordination memorandum of understanding in March 2026 and the SEC followed up with a five-part crypto taxonomy that formally classifies Bitcoin and Ether as digital commodities. For SIG readers holding a spot Bitcoin ETF, using USDC, or thinking about how their crypto exposure is regulated, this is the picture as of May 2026. The UK’s parallel work on crypto regulation (FCA’s CP26/13 consultation closes June 3, 2026) is structurally further behind.
In short
- GENIUS Act signed July 18, 2025. First federal stablecoin law in the US. Requires payment stablecoins to be backed 1:1 by a defined list of reserve assets (T-bills under 93 days, reverse repo, MMF shares, demand deposits, cash, or tokenised equivalents). Stablecoin holders get bankruptcy-remote, first-priority security interest in reserves. Issuers split into three tiers by size and charter type; state regimes accepted if “substantially similar” to federal, with a $10 billion threshold forcing growth-stage issuers onto federal oversight.
- SAB 122 issued January 23, 2025. Rescinded SAB 121’s requirement that banks hold custodied crypto as a full balance-sheet liability. Banks now treat custodied crypto using traditional custodial accounting (off-balance-sheet), with risk-based assessment instead of a uniform capital charge. BNY Mellon, Citi, JPMorgan, and Mastercard have all expanded crypto custody activity post-SAB 122.
- SEC-CFTC MOU signed March 11, 2026. Coordinates oversight to eliminate duplicative examinations and enforcement actions for cross-market crypto firms. Followed six days later by a SEC Interpretive Release establishing a five-part crypto taxonomy: digital commodities (CFTC; includes Bitcoin and Ether), digital collectibles (lighter touch; NFTs), digital tools (utility tokens), stablecoins (banking regulators under GENIUS Act), and digital securities (SEC; investment contracts).
- Circle / USDC: compliance path is affirmative. USDC reserves already match GENIUS Act requirements (short-dated US Treasuries, overnight repo, cash). OCC granted Circle conditional approval in December 2025 to establish a national trust bank, qualifying USDC as a Tier 2 federal issuer.
- Tether / USDT: not GENIUS Act compliant in current form. Tether’s BVI structure and reserve composition (which includes commercial paper, corporate bonds, Bitcoin) does not meet GENIUS Act standards. Tether launched a separate US product, USAₜ, on January 27, 2026, issued by a US-chartered bank. USDT itself has a grace period until July 2028 for US digital asset service providers.
- FIT21 / CLARITY Act status: not yet enacted. The broader market-structure legislation that would resolve commodity vs. security classification for most non-Bitcoin tokens is in Senate committees. CLARITY Act introduced in House on May 29, 2025. Senate Banking Committee released a 278-page draft January 12, 2026. No unified bill has passed both chambers.
- UK contrast: The FCA’s CP26/13 perimeter guidance consultation closes June 3, 2026. UK final crypto regime expected October 2027. UK authorisation window opens September 2026 and closes February 2027. On stablecoin law specifically, the US is approximately 18-24 months ahead of the UK.
What the GENIUS Act actually does
The Guiding and Establishing National Innovation for US Stablecoins Act, signed on July 18, 2025, is the first federal statute regulating payment stablecoins. Before the GENIUS Act, stablecoin issuers operated in a patchwork of state money-transmitter licenses (notably New York’s BitLicense for Circle’s USDC) with no federal regulatory perimeter. Reserve composition, redemption rights, and bankruptcy treatment varied by issuer and jurisdiction.
The Act introduces five substantive requirements that materially change the structure of US-issued payment stablecoins.
1. Permitted reserve assets are statutorily defined
Payment stablecoin reserves must consist entirely of: US dollars (Federal Reserve notes or physical currency); demand deposits at FDIC-insured banks or credit unions; US Treasury bills, notes, or bonds with remaining maturity of 93 days or less; Treasury-backed reverse repurchase agreements; shares in registered money market funds investing exclusively in those instruments; or tokenised versions of any of the above where compliant with applicable law.
Excluded: corporate bonds, longer-duration Treasuries, equities, crypto assets, commodities, or any yield-bearing asset that introduces credit or duration risk. Rehypothecation is explicitly forbidden; reserves cannot be pledged, lent, or encumbered.
This list is narrower than what some major issuers held before the Act. Tether’s USDT historically held commercial paper, corporate bonds, and (for a time) some Bitcoin. Under GENIUS Act standards, none of those would qualify. Circle’s USDC has held short-dated Treasuries, overnight repo, and cash for several years and already complies.
2. Issuer tiers with size-based federal escalation
The Act creates three tiers of stablecoin issuer based on entity type and outstanding issuance.
- Tier 1: Subsidiaries of FDIC-insured banks or credit unions, regulated by the appropriate federal banking agency (OCC, Federal Reserve, FDIC) or the National Credit Union Administration.
- Tier 2: Nonbank entities or uninsured national banks chartered by the OCC.
- Tier 3: State-chartered entities with outstanding stablecoins under $10 billion, regulated by the state if the state regime is “substantially similar” to the federal standard and approved by a federal Stablecoin Certification Review Committee.
The $10 billion threshold matters. State-regulated issuers whose outstanding stablecoins exceed $10 billion (measured over a 30-day rolling average) must transition to federal oversight within 360 days or cease new issuance. This forces growth-stage issuers onto the federal track as they scale, preventing a state-level regulatory arbitrage at the high end of the market.
3. Bankruptcy-remote consumer protection
If a stablecoin issuer goes insolvent, reserve assets are not property of the bankruptcy estate. Stablecoin holders hold a perfected first-priority security interest in those reserves, senior to all other creditors. Courts are required to provide expedited review of reserve distribution in any insolvency proceeding.
This is a material improvement over unregulated stablecoin structures where token holders had unsecured creditor status. In a TerraUSD-style collapse under the prior framework, retail holders would have been at the back of the queue. Under the GENIUS Act, they would be at the front, with the reserves legally segregated.
4. Yield prohibition
Payment stablecoin holders cannot receive interest or yield on their stablecoin balance. This is an explicit statutory ban. Yield-bearing stablecoin products (PayPal PYUSD’s rewards program is the most-discussed example) face a compliance question; PayPal has not publicly resolved this as of May 2026. The yield prohibition is one of the more debated features of the Act because it eliminates one of the consumer-facing revenue models that some issuers had been building. The issuer’s revenue model under the Act is float yield (the return on reserves), not consumer yield.
5. Reporting, AML, and foreign issuer rules
Permitted payment stablecoin issuers face monthly public reporting of reserve composition, weekly confidential regulator reports, annual audited financials for issuers above $50 billion in consolidated issuance, quarterly Call Report-style public filings, and CEO/CFO certifications on reserve attestations. Anti-money laundering obligations apply (KYC, suspicious activity reporting, OFAC sanctions screening). Foreign issuers may operate in US markets only if they meet “comparable” foreign regulation, hold US reserves, register with the OCC, and originate from non-sanctioned jurisdictions. The Tether/USDT structure does not meet these requirements.
What SAB 122 did for bank custody
SAB 121, issued in March 2022, required SEC-reporting banks to record the full fair value of crypto held for customers as both an asset and an offsetting liability on the bank’s balance sheet, with the liability remeasured each reporting period. The effect was to require approximately $1 of Tier 1 regulatory capital for every $1 of customer Bitcoin held in custody. At Bitcoin prices around $100,000 per coin in 2024-2025, this made bank custody of meaningful customer Bitcoin balances economically unviable.
SAB 122, issued January 23, 2025, rescinded that requirement. Customer crypto held in custody no longer appears on the bank’s balance sheet by default. Standard custodial accounting applies, consistent with how banks have treated custodied equities and bonds for decades. Capital requirements for the custody position itself drop to approximately zero.
The change is structurally important for the spot Bitcoin and Ether ETF market. BNY Mellon supports custody for 80%+ of approved US Bitcoin and Ether exchange-traded products through its fund services arm. Citi, JPMorgan, and Mastercard have introduced scalable custody-related services post-SAB 122. The OCC issued Interpretive Letter 1183 confirming that nationally chartered banks may provide crypto custody under sound risk management principles. For an SIG reader holding IBIT (BlackRock’s spot Bitcoin ETF) or FBTC (Fidelity’s), the custodial layer is now more robust and the operational risk lower than it was 18 months ago.
SAB 122 does not eliminate all disclosure obligations. Banks must still assess and disclose contingent liabilities under FASB ASC 450-20 if specific operational, cyber, or counterparty risks rise to “probable and estimable” loss exposure. The framework is risk-based rather than uniform; each institution sets its own internal model. But the prior dollar-for-dollar capital charge is gone.
The SEC-CFTC MOU and the five-part taxonomy
The SEC-CFTC Memorandum of Understanding signed March 11, 2026 ends a multi-year jurisdictional fight between the two main US crypto regulators. The MOU establishes a Joint Harmonisation Initiative committing both agencies to coordinated exam planning, non-duplicative enforcement, joint rulemakings on crypto asset classification, streamlined reporting, and shared cross-market risk surveillance.
Six days later, on March 17, 2026, the SEC issued an Interpretive Release establishing a formal five-part taxonomy of crypto assets:
- Digital commodities: Under CFTC jurisdiction. The release explicitly includes Bitcoin and Ether in this category. Commodity classification means a lighter regulatory touch on spot products and ETFs than securities classification would impose.
- Digital collectibles: NFTs and similar; lighter regulatory touch as long as they do not function as investment contracts.
- Digital tools: Utility tokens whose primary function is access to a service or platform; lighter touch.
- Stablecoins: Regulated under the GENIUS Act framework by banking regulators (Fed, OCC, FDIC, NCUA, qualifying state regulators).
- Digital securities: Investment contracts under the Howey test; SEC jurisdiction; full securities-law treatment.
The taxonomy resolves the practical question that has paralysed US crypto regulation since 2022: are most tokens commodities or securities? The answer under the new taxonomy is “it depends on the token’s economic function.” Bitcoin and Ether are commodities. ICOs and tokens marketed as investments under Howey-test analysis are securities. Most tokens that fall in between (utility tokens, governance tokens, gaming tokens) face individual classification but the framework now exists.
Where Tether and Circle landed
The two largest stablecoin issuers responded to the GENIUS Act in materially different ways.
Circle / USDC: affirmative compliance path. USDC’s reserves were already compliant with the GENIUS Act’s permitted-asset list before the Act passed. Circle’s reserves consist of short-dated US Treasuries, overnight repurchase agreements, and cash, custodied at BNY Mellon and managed by BlackRock. Monthly attestations from major accounting firms were already in place. In December 2025, the OCC granted Circle conditional approval to establish First National Digital Currency Bank, N.A., qualifying Circle as a Tier 2 federal issuer under the GENIUS Act. Circle submitted a public comment letter to Treasury on November 4, 2025, supporting “full and faithful implementation” of the Act. For SIG readers using USDC for crypto transactions, the compliance picture is positive.
Tether / USDT: non-compliant, separate US product launched. Tether’s BVI domicile and historical reserve composition (commercial paper, corporate bonds, some Bitcoin) do not meet GENIUS Act reserve or domicile requirements. USDT itself is not a “permitted payment stablecoin” under the Act for US issuance or distribution. Tether’s response was to launch a separate product, USAₜ, on January 27, 2026, issued by a US-nationally-chartered bank under OCC regulation. Tether acts as branding and technology partner; the actual issuer is the US-chartered entity. USAₜ is designed to meet GENIUS Act requirements for the US market while USDT continues globally.
US digital asset service providers have a grace period until July 2028 to transition off non-compliant stablecoins. For SIG readers who hold or use USDT on US exchanges, the practical implication is that USDT availability on US-licensed venues will tighten over the next 24-36 months. USAₜ is Tether’s positioning for the US market within the GENIUS Act framework.
PayPal / PYUSD: compliance uncertainty. PYUSD’s reserve composition (US Treasuries, cash equivalents) aligns with the GENIUS Act’s permitted-asset list. The complication is PayPal’s PYUSD rewards program, which provides holder yield in some configurations. The GENIUS Act’s yield prohibition may conflict with that rewards structure. PayPal has not publicly resolved the position as of May 2026. For SIG readers using PYUSD, monitoring PayPal’s public statements over the next several months is the appropriate posture; structural changes to PYUSD’s product features are possible.
FIT21 / CLARITY Act: still pending
The broader market-structure legislation that would handle commodity-vs-security classification for most non-Bitcoin tokens is not yet law. FIT21 (Financial Innovation and Technology for the 21st Century Act) passed the US House 279-136 on May 22, 2024 but died in the Senate without a vote. In the current 119th Congress, House Financial Services Chair French Hill introduced the CLARITY Act on May 29, 2025 as an evolved successor. The Senate Banking Committee released a 278-page draft bill on January 12, 2026. The Senate Agriculture Committee advanced its own Digital Commodity Intermediaries Act draft out of committee on January 29, 2026.
No unified bill has passed both chambers. The SEC-CFTC MOU and the March 17 taxonomy serve as executive-action workarounds for the questions FIT21 would have answered legislatively. The taxonomy has the practical effect of resolving commodity-vs-security for the largest assets (Bitcoin, Ether) while Congress continues drafting the broader framework. For SIG readers, the practical implication is that the rules for Bitcoin and Ether are now clear; the rules for newer tokens, governance tokens, and DeFi protocols will not have legislative clarity until 2027 or later.
The UK comparison
UK readers may have seen our amended UK crypto regulation explainer, updated today with the FCA’s CP26/13 consultation timeline. The contrast with the US picture is material.
On stablecoin law specifically, the US has primary legislation in force (GENIUS Act enacted July 2025, implementing regulations issued April 2026). The UK does not have primary stablecoin legislation; the FCA is consulting on a framework via CP26/13, with the consultation closing June 3, 2026 and final guidance expected September 2026. The UK full cryptoasset regulatory regime is scheduled for October 25, 2027.
On bank custody, the US rescinded SAB 121 in January 2025 with SAB 122 returning to traditional custodial accounting. The UK has not had an equivalent restrictive rule, so the SAB 121-to-122 shift does not have a direct UK analog; UK bank custody of crypto has operated under standard regulatory capital rules throughout.
On commodity-vs-security classification, the US has the March 17, 2026 SEC taxonomy that formally classifies Bitcoin and Ether as commodities. The UK FCA’s perimeter guidance under CP26/13 is the equivalent UK exercise, but it has not yet been finalised. The UK guidance is expected to track the IOSCO and international consensus, which broadly aligns with the US classification.
The two countries arrive at similar substantive positions through different timelines and structures. For an SIG reader exposed to both jurisdictions, the practical position is that US rules are more settled today; UK rules will be settled by Q4 2026 to Q1 2027.
What this means for typical SIG readers
Three groups of readers face different practical implications.
For spot Bitcoin or Ether ETF holders (IBIT, FBTC, ETHA, etc.)
SAB 122 strengthens the structural custody layer; the ETF you hold has more robust bank custody than it would have under SAB 121. The March 17 SEC taxonomy confirms Bitcoin and Ether as commodities, which is favourable for the regulatory posture of these products. No GENIUS Act direct impact. Total US-domiciled Bitcoin ETF AUM reached $135 billion in April 2026; IBIT alone holds approximately 810,000 BTC with $65.77 billion AUM. The structural picture is positive. The investment thesis on Bitcoin or Ether itself remains the reader’s call; the regulatory plumbing supporting the ETF wrapper has improved.
For stablecoin users (USDC, USDT, PYUSD)
USDC users: the compliance path is positive; reserves are already aligned with GENIUS Act standards and OCC chartering of First National Digital Currency Bank N.A. positions USDC as a Tier 2 federal issuer.
USDT users: monitor the transition timeline. USAₜ is Tether’s GENIUS-compliant US product. USDT itself has until July 2028 before US digital asset service providers must transition off it. For most US retail use, switching from USDT to USDC or USAₜ over the next 24 months is the structurally cleaner posture.
PYUSD users: monitor PayPal’s public statements on the rewards-program reconciliation with the GENIUS Act yield prohibition. The product’s continued availability and feature set may evolve.
For everyone else (crypto-adjacent or curious)
The US crypto regulatory framework is more developed than it was 18 months ago and more developed than the UK equivalent. This does not change anything about the underlying volatility and risk of crypto assets themselves. Bitcoin, Ether, and stablecoins remain high-risk products in their own right; the regulatory improvements reduce structural risk (bank custody, reserve composition, bankruptcy treatment), not market risk. Any decision to allocate to crypto assets should be made on the underlying investment merits, not on the regulatory news cycle.
FAQ
Does the GENIUS Act make stablecoins as safe as bank deposits?
No. Bank deposits at FDIC-insured institutions are protected by federal deposit insurance up to $250,000 per depositor per insured bank. GENIUS Act stablecoin holders have a first-priority security interest in reserves, which means they get paid out of the reserves before other creditors if the issuer fails. The protection is the reserve composition (1:1 backed by safe assets) plus the bankruptcy-remote structure, not federal insurance. The protection is meaningful but different from FDIC.
Should I switch from USDT to USDC?
For US-based use, USDC has a cleaner compliance path. Tether’s USAₜ is also GENIUS-compliant for the US market but is a newer product with shorter operating history. USDT itself faces a transition window until July 2028 for US distribution. For US users prioritising regulatory clarity, switching from USDT to USDC over the next 12-24 months is the structurally simpler posture. For non-US users, USDT remains widely supported and the GENIUS Act has no direct effect.
Does the SEC taxonomy mean Bitcoin can never be reclassified as a security?
The SEC’s March 17, 2026 Interpretive Release classifies Bitcoin as a digital commodity under CFTC jurisdiction. The Interpretive Release reflects current SEC policy and could in principle be reversed by a future Commission. However, the FIT21 / CLARITY Act legislation, if enacted, would codify Bitcoin’s commodity status into statute, making it much harder to reverse. The practical risk of a re-classification is low and would be substantially lower with statutory codification.
What about other tokens like Solana, Cardano, or XRP?
The taxonomy provides a framework but not a token-by-token list. The SEC has historically taken case-by-case positions on specific tokens. Solana, Cardano, and XRP have all been the subject of SEC enforcement actions or scrutiny in past years. Under the new taxonomy, the analysis turns on whether the token was sold as an investment contract under Howey-test analysis at the time of issuance. Spot ETFs for any of these tokens would need to clear individual SEC review even with the broad taxonomy in place. As of May 2026, only Bitcoin and Ether have approved spot ETFs in the US.
Are bank-issued stablecoins coming next?
Possibly. The GENIUS Act’s Tier 1 framework allows FDIC-insured banks to issue payment stablecoins through subsidiaries. Several large US banks have publicly explored stablecoin issuance plans; none have launched a major product as of May 2026. The OCC’s interpretive guidance and the FDIC’s April 2026 implementing rule provide the regulatory plumbing for bank-issued products. Whether commercial demand exists for bank-issued stablecoins alongside USDC, USAₜ, and PYUSD is an open question.
The Savvy Investor’s take
The US crypto regulatory framework matured faster between January 2025 and May 2026 than in any comparable 16-month window in the asset class’s history. For SIG readers, the practical implications are real but narrow. If you hold a spot Bitcoin or Ether ETF, the custody layer is structurally stronger. If you use USDC, the regulatory path is clean. If you use USDT, plan for a transition. If you use PYUSD, monitor PayPal’s public statements on the yield-prohibition reconciliation. If you hold or are considering Bitcoin or Ether directly, the asset class’s regulatory standing is more secure than it was a year ago.
The bigger story is that the US has put down a framework that other jurisdictions, including the UK, are now working to match. The UK FCA’s CP26/13 consultation that closes June 3 and the full UK cryptoasset regime that follows in October 2027 will produce a UK framework with substantial similarities to the US GENIUS Act and the SEC-CFTC taxonomy. The substantive convergence makes cross-border use of stablecoins and crypto ETFs easier over time, even where the timelines and structures differ.
For most SIG readers, the regulatory news does not change the crypto allocation decision itself. Bitcoin, Ether, and stablecoins remain high-volatility products with risk-of-loss characteristics that are independent of the regulatory framework. The improvements over the past 16 months reduce structural risk; they do not reduce market risk. Any allocation to these assets should rest on the same disciplined position-sizing and risk-tolerance analysis that applies to any other allocation decision.
Information, not advice. This article describes US crypto and stablecoin regulation as of May 20, 2026, including the GENIUS Act (signed July 18, 2025), SAB 122 (issued January 23, 2025), the SEC-CFTC Memorandum of Understanding (signed March 11, 2026), and related developments. It is not personal investment, legal, or tax advice. Crypto assets carry substantial risk including total loss of principal. Savvy Investor Guide is not authorized or regulated by any US or UK financial regulator. For personal advice, consult a qualified registered investment adviser, tax professional, or attorney in your jurisdiction.
Key sources
- Latham & Watkins: The GENIUS Act of 2025 — comprehensive guide
- Paul Hastings: GENIUS Act guide
- FDIC implementing rule (Federal Register, April 10, 2026)
- OCC proposed rule (Federal Register, March 2, 2026)
- SEC press release on SEC-CFTC MOU
- CFTC press release on MOU
- Circle: GENIUS Act compliance page
- CCN: USAₜ and USDC vs USDT compliance analysis
- K2 Integrity: SAB 122 implications for bank crypto custody
- Savvy Investor Guide: UK crypto regulation: FCA’s 2026-2027 authorisation timeline (UK sibling article)
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