SEC Proposal Opens Up Crypto Custody Market to State Trust Companies

The Securities and Exchange Commission (SEC) has proposed new regulations for cryptocurrency custody, which could significantly impact the market. The proposal would give state trust companies a permanent place in regulated crypto custody and allow advisers to hold assets themselves when no custodian is available.

This shift would change the competitive landscape, moving away from a focus on regulatory status and toward commercial considerations such as asset coverage, service breadth, and integration with clients' portfolios. Traditional banks have historically been at an advantage due to their federal charters, but this proposal would reduce the significance of charter moats.

Crypto-native custodians like Coinbase, Gemini, and Fireblocks could gain a clearer route to institutional clients, while banks would need to defend relationships based on their ability to support client assets. The SEC's proposal would also create new opportunities for firms that can safely diligence and support new networks and tokens, making the asset-listing roadmap an important part of sales strategies.

The self-custody provision in the proposal would require advisers to have documented safeguarding expertise, cybersecurity controls, regular reviews, and independent internal-control reporting. This could limit the option to firms with sufficient scale, creating a new market for infrastructure providers such as Fordefi and Fireblocks.