The U.S. Securities and Exchange Commission (SEC) released an investor bulletin on Friday regarding crypto wallets and custody, detailing best practices and prevalent risks associated with various forms of crypto storage for investors.
The SEC’s bulletin outlines both the advantages and risks of various custody methods, comparing self-custody with third-party digital asset management.
When opting for third-party custody, investors must be aware of the custodian’s policies, such as whether they “rehypothecate” assets by lending them or if they pool client assets instead of keeping them in separate accounts.
The SEC guide also describes various crypto wallet types, discussing the advantages and disadvantages of hot wallets, which are internet-connected, versus offline cold wallets.
According to the SEC, hot wallets pose risks of hacking and other cybersecurity threats, while cold wallets risk permanent loss if the offline storage fails, the device is stolen, or if private keys are compromised.
The SEC’s crypto custody guide reflects a significant regulatory shift at the agency, which had previously taken a hard stance against digital assets under former Chairman Gary Gensler.
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The crypto community views the SEC guide as a pivotal change
“The same agency that spent years attempting to stifle the industry is now educating people on how to utilize it,” Truth For the Commoner (TFTC) commented in reaction to the SEC’s custody guide.
The SEC is adding “significant value” for crypto investors by informing potential holders about custody practices and best strategies, noted Jake Claver, CEO of Digital Ascension Group, which offers services to family offices.
The SEC released the guide shortly after Chair Paul Atkins stated that the traditional financial system is transitioning to on-chain solutions.
On Thursday, the SEC authorized the Depository Trust and Clearing Corporation (DTCC), a clearing and settlement entity, to begin tokenizing financial assets including equities, ETFs, and government securities.
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