SEC unveils plan for advisers to self-custody Bitcoin and crypto

The US Securities and Exchange Commission put forward a set of rules that, under specific conditions, would let investment advisers and regulated funds directly custody Bitcoin and other digital assets, and also permit state trust companies to act as custodians.

Announced on 1 October and first covered by The Block, the proposal is intended to fill infrastructure gaps that institutions require to hold digital assets directly instead of via ETFs or other middlemen. The rule would cover investment advisers and regulated funds, which encompasses asset managers and hedge funds. The proposal is now in a 60-day public comment period, meaning it is not yet a finalized regulation.

Paul Atkins, the SEC Chair, stated that the agency's regulations have not kept up with a crypto market that is now valued in the trillions. Commissioner Hester Peirce argued that regulators ought to safeguard investors' ability to self-custody instead of compelling them to use third-party custodians.

Why this is important

Custody has historically been a practical hurdle for professional money managers looking at direct crypto investments. Existing regulations typically force advisers to hold client assets with a qualified custodian, leading many to choose ETFs as the easiest way to gain Bitcoin exposure. A more defined set of rules might make direct ownership more feasible. The outlook is modestly positive.

The proposal eliminates a hurdle, but it does not generate demand on its own. No adviser or fund is mandated to purchase crypto, and any impact on portfolio allocations is expected to be slow. If finalized, it might also move some institutional positions from ETFs into direct holdings. That would mean ETF flow figures become a less comprehensive gauge of institutional demand over time.

This action is part of a broader effort by the SEC and the Commodity Futures Trading Commission to revise crypto rules following the Senate's failure to pass the Clarity Act. Additional proposals are anticipated.

Elements to monitor going forward

• Comment period: The 60-day comment window will reveal if major asset managers, custodians, and banks back the framework or seek alterations.
• Final rule: The eventual regulation may differ from the proposal, especially regarding self-custody conditions and the role of state trust companies.
• Follow-on proposals: Future SEC and CFTC proposals could determine how much institutional crypto access is broadened.
• Flows: For market participants, the crucial indicator is whether easier custody eventually translates into allocations, rather than just the announcement itself.