SEC Issues Crypto Custody Warning and Updates Regulatory Landscape
The U.S. Securities and Exchange Commission (SEC) has issued an investor bulletin that clearly defines crypto custody and explains the differences between self-custody and third-party custodians. A key risk highlighted in the bulletin is that losing private keys results in permanent loss of access to cryptocurrencies, while compromised keys can enable theft with no recourse.
Crypto wallets are categorized as hot wallets, which remain online and offer convenience but greater exposure to cyber threats, and cold storage, which is offline, more secure, but less portable—with physical devices susceptible to loss or damage. Individuals opting for self-custody must secure their keys and manage backups carefully, whereas custodians need thorough vetting concerning their storage methods (hot versus cold), insurance, response strategies for bankruptcy or hacks, and associated fees.
Under the chairmanship of Paul Atkins, the SEC is transitioning from enforcement to policy development aimed at fostering innovation and positioning the U.S. as a global crypto capital. Supporting this shift, the Depository Trust & Clearing Corporation (DTCC) received a no-action letter to begin tokenizing U.S. Treasuries, ETFs, and Russell 1000 components starting in late 2026.
Additionally, the Office of the Comptroller of the Currency (OCC) has approved national trust bank charters for Circle, Ripple, BitGo, Fidelity Digital Assets, and Paxos. Notably, Paxos is authorized to issue stablecoins, while Ripple's charter specifically excludes its RLUSD stablecoin. However, the OCC also found that nine major U.S. banks imposed inappropriate restrictions on lawful crypto businesses between 2020 and 2023.
In other regulatory developments, the Commodity Futures Trading Commission (CFTC) launched a pilot program permitting Bitcoin, Ether, and USDC to be used as collateral in derivatives markets. Meanwhile, the Senate is moving to finalize the Responsible Financial Innovation Act amid union concerns that pension funds could be exposed to unregulated assets.
