SEC Proposes Custody Framework for Cryptocurrency Assets

The US Securities and Exchange Commission (SEC) has proposed a custody framework that would allow investment advisers and regulated funds to hold cryptocurrency under specific rules. This move is part of nine agency actions taken since August 18, which cover various aspects of the crypto asset's life cycle, from fundraising to safekeeping.

The SEC's proposal, issued on October 1, creates an offering regime for certain investment contracts involving cryptocurrency assets and includes exemptions for up to $5 million over four years and $75 million in a 12-month period. The agency also published FAQs on token functionality, decentralization, staking receipt tokens, marketing, continued network building, buybacks, and secondary-market promoters.

The Commodity Futures Trading Commission (CFTC) has also taken steps to regulate the crypto market, including granting its Innovation Exemption, a five-year conditional exemption that lets qualifying Tokenized Securities Venues trade tokenized NMS stocks through permissioned automated market makers and liquidity pools. The CFTC staff took a no-action position covering passive software providers that connect users to registered futures firms and markets.

Coinbase Clearing LLC was registered by the CFTC as a derivatives clearing organization permitted to clear fully collateralized futures, options on futures, and swaps. The SEC's proposal would create a custom custody framework for registered investment advisers, registered investment companies, and other regulated funds, allowing self-custody in certain circumstances.

Chairman Paul Atkins described the SEC's proposal as a compliant custody path where none existed before. Citi raised its 12-month forecast for Bitcoin to $113,000 from $82,000, citing ETF inflows and gradual adviser and brokerage allocation growth.