SEC Proposes Framework for Crypto Custody by Advisers and Funds

The U.S. Securities and Exchange Commission (SEC) has proposed a new framework for the custody of crypto assets by investment advisers and regulated funds. This move aims to provide a 'compliance pathway' for holding digital assets under a set of rules established before the rise of the internet. According to SEC Chairman Paul Atkins, the crypto asset market has evolved significantly since the birth of Bitcoin in 2008, with investors seeking exposure to this trillions-of-dollars asset class.

The proposed framework addresses the lack of qualified custody infrastructure for certain crypto assets, which has been a key issue for institutional investors. It also permits self-custody of crypto assets under specific circumstances and allows state-chartered trust companies to provide custody services for clients' and regulated funds' crypto assets.

This development is significant for institutional entities such as asset managers and hedge funds that wish to hold Bitcoin and other crypto assets directly, rather than gaining exposure through ETFs or other intermediaries. SEC Commissioner Hester Peirce clarified that 'self-custody' refers to the investment adviser acting as the custodian of client assets, not investors directly controlling their own crypto assets.