The United States Securities and Exchange Commission (SEC) released an investor bulletin on Friday regarding crypto wallet and custody practices, detailing best practices and common risks associated with various forms of crypto storage for investors.
The SEC’s bulletin outlines the advantages and disadvantages of different custody options for crypto, comparing self-custody with third-party custodial services for managing digital assets.
Investors opting for third-party custody must understand the custodian’s policies, including whether they “rehypothecate” assets by lending them out, or if they are pooling client assets rather than maintaining segregated accounts for each customer’s crypto.
The SEC guide also identifies various types of crypto wallets, analyzing the benefits and drawbacks of hot wallets, which are internet-connected, versus cold wallets that provide offline storage.
According to the SEC, hot wallets present risks of hacking and other cybersecurity issues, while cold wallets carry the potential for complete loss if the offline storage device fails, is stolen, or if the private keys become compromised.
The SEC’s crypto custody guide signifies a major regulatory shift at the agency, which previously adopted a critical stance towards digital assets and the crypto sector under former SEC Chairman Gary Gensler.
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The crypto community views the SEC guide as a significant change within the agency
“The very agency that spent years attempting to undermine the industry is now educating people on how to engage with it,” Truth For the Commoner (TFTC) stated in reaction to the SEC’s crypto custody guide.
The SEC is offering “significant value” to crypto investors by informing potential crypto holders about custody processes and best practices, as per Jake Claver, CEO of Digital Ascension Group, which provides services to family offices.
SEC regulators released this guide just a day after SEC Chair Paul Atkins remarked that the traditional financial system is transitioning to onchain solutions.
On Thursday, the SEC approved the Depository Trust and Clearing Corporation (DTCC), a firm specializing in clearing and settlement, to start tokenizing financial assets, which will encompass equities, exchange-traded funds (ETFs), and government debt securities.
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