On Friday, the United States Securities and Exchange Commission (SEC) released an investor bulletin about crypto wallets and custody, detailing recommended practices and common risks associated with various cryptocurrency storage methods for the investment community.
The SEC’s bulletin outlines the advantages and dangers of different custody methods for cryptocurrency, contrasting self-custody with entrusting a third party to manage digital assets for the investor.
Investors opting for third-party custody should be aware of the custodian’s practices, specifically whether it “rehypothecates” the assets placed in its care by lending them out or if it pools client assets rather than keeping the cryptocurrency in separate accounts.
The SEC guide also highlighted various crypto wallet types, detailing the advantages and disadvantages of hot wallets that are internet-connected versus cold wallets that provide offline storage.
According to the SEC, hot wallets are susceptible to hacking and other cybersecurity risks, while cold wallets face potential permanent loss if the offline storage fails, the device is stolen, or the private keys are compromised.
The SEC’s guide on crypto custody emphasizes a significant regulatory shift at the agency, which had been adversarial toward digital assets and the crypto sector under the leadership of former SEC Chairman Gary Gensler.
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The crypto community embraces the SEC guide as a pivotal change within the agency
“The very agency that sought to stifle the industry is now educating people on how to navigate it,” Truth For the Commoner (TFTC) remarked in response to the SEC’s new crypto custody guide.
The SEC is offering “substantial value” to crypto investors by enlightening potential cryptocurrency holders about custody and best practices, noted Jake Claver, the CEO of Digital Ascension Group, a firm that serves family offices.
The SEC released the guide just a day after SEC Chair Paul Atkins stated that the traditional financial framework is transitioning to onchain systems.
On Thursday, the SEC approved the Depository Trust and Clearing Corporation (DTCC), a clearing and settlement entity, to start tokenizing financial assets, including equities, exchange-traded funds (ETFs), and government debt securities.
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