SEC Rule Proposal Paves Way for Advisers to Hold Crypto Directly

The Securities and Exchange Commission (SEC) has proposed a new rule that would allow registered investment advisers to directly hold Bitcoin and other cryptocurrencies for their clients. This move could funnel significant funds into the crypto market, potentially reaching $100 trillion in managed funds.

Currently, most investment advisers refrain from buying Bitcoin due to strict custody regulations. The SEC's proposal updates the Investment Advisers Act of 1940 and the Investment Company Act of 1940, allowing state trust companies and registered broker-dealers to serve as custodians under certain conditions.

The proposal also permits advisers to hold private keys themselves, but only after demonstrating that they could not find an approved custodian for the asset. This would require at least two individuals to authorize any use of these keys and ensure security through separate client addresses and independent audits.

Custodians will ultimately decide which coins advisers can access, as the costs of full self-custody are challenging for many firms. Bitcoin and Ethereum funds currently hold significant assets, with spot Bitcoin ETFs holding $108 billion and Ethereum funds accounting for $17.8 billion. The SEC's proposal is subject to a 60-day comment period before final regulations take effect.