Regulatory Developments: SEC and CFTC Shape Crypto Custody and Access

The United States Securities and Exchange Commission published a crypto wallet and custody guide investor bulletin, outlining best practices and risks associated with different forms of cryptocurrency storage.

This guide emphasizes the importance of understanding the policies of third-party custodians, including whether they commingle client assets or rehypothecate the assets held. The bulletin distinguishes between hot wallets, which are internet-connected and susceptible to hacking, and cold wallets, which pose risks of permanent loss if storage devices fail or private keys are compromised.

This regulatory shift marks a significant change for the SEC, which had previously adopted a hostile stance toward the crypto industry under former chair Gary Gensler. In contrast, the U.S. Commodity Futures Trading Commission has withdrawn its 2020 guidance on the actual delivery of digital assets, aiming to promote broader access to regulated crypto markets.

This withdrawal is indicative of evolving oversight and a potential shift toward more inclusive regulations in the crypto space. The developments from both the SEC and CFTC signal a transformative moment that could impact how cryptocurrencies are managed and traded, influencing both institutional and retail investors alike.

Jake Claver, CEO of Digital Ascension Group, noted that the SEC is providing significant value by educating prospective crypto holders on custody practices. This new SEC guide was published a day after SEC Chair Paul Atkins highlighted the legacy financial system's transition to on-chain operations.