SEC Proposal Could Reshape the Crypto Custody Market
A proposed change from the U.S. Securities and Exchange Commission could create a more competitive crypto custody market in which regulatory status remains important but no longer determines the commercial outcome by itself. Crypto-native custodians could gain a clearer route to institutional clients, while established banks would need to compete through asset coverage, service breadth and integration with the rest of a client’s portfolio.
The proposal would place qualifying state-chartered trust companies directly within the relevant custody rules. These firms would have to meet requirements involving safeguarding policies, financial audits, internal controls and asset segregation. The approach would not eliminate the advantages of a federal charter, but it could reduce the extent to which a federal banking framework alone distinguishes one custody provider from another.
Coinbase, Gemini and Fireblocks Could Gain a Clearer Regulatory Path
Coinbase, Gemini and Fireblocks have spent years building regulated custody businesses around trust-company structures rather than conventional commercial-bank models. Coinbase Prime custody is provided through Coinbase Custody Trust Company, a New York-chartered trust company regulated by the New York State Department of Financial Services that advertises support for more than 470 assets.
Gemini Custody operates through Gemini Trust Company. Fireblocks has added its own NYDFS-chartered Fireblocks Trust Company to the wallet and transaction infrastructure it already provides to institutional customers.
The SEC created an interim opening for firms such as these last year when agency staff said they would not recommend enforcement against advisers and funds that treated qualifying state trust companies as permitted crypto custodians. The new proposal would formalize the position within the rules, subject to the specified safeguards.
The change is significant because some crypto firms have pursued federal custody structures. Anchorage Digital obtained a federal charter in 2021, while BitGo and Fidelity Digital Assets have developed federally regulated custody arrangements as the market matured. Those structures could remain attractive to institutions that prefer a federal banking framework, but the SEC proposal would make them less exclusive as a route into regulated crypto custody.
Crypto Asset Coverage Could Become a Major Competitive Advantage
The proposal’s treatment of unsupported assets could become one of its most important commercial features. An adviser would be permitted to self-custody a crypto asset only after determining that no qualified custodian was available to hold it. The adviser would have to revisit that determination at least quarterly and, if a qualified custodian later added support, transfer the asset as soon as reasonably practicable.
That framework would turn asset coverage into a customer-acquisition tool. A long list of supported tokens would become more than a product specification if it determined whether a regulated asset manager could outsource custody. A fund seeking exposure to an emerging token might initially need to use its adviser’s own infrastructure because no qualified custodian supported the asset. If Coinbase, Fireblocks Trust, Gemini or another provider later added the token, the provider could create a regulatory reason for the adviser to transfer the holding.
For custodians, the ability to assess and support new networks and tokens quickly could determine how much of a client’s portfolio they capture. For crypto issuers, qualified-custodian support could become part of institutional distribution. Exchange liquidity would be less useful to regulated investors if they could not operationally hold an asset through an approved custody arrangement.
Self-Custody Would Create Demand for Infrastructure, Not Remove Intermediaries
Although the self-custody provision could appear to threaten third-party custodians, the proposal treats it as a fallback rather than a broad replacement for outsourced custody. Advisers choosing that route would need documented safeguarding expertise, cybersecurity controls, regular reviews and independent reporting on internal controls.
The SEC estimates that the specified self-custody requirements would cost an adviser approximately $433,833 per year on average. That estimate includes about $376,000 for the required internal-control report. Because many of the costs would be largely fixed, the Commission says the option could be practical mainly for firms with enough scale to justify building the necessary systems.
Those obligations could benefit other parts of the digital-asset infrastructure market. Fordefi sells institutional self-custody technology based on multiparty computation key management and policy controls. Fireblocks operates on both sides of the market by providing institutional wallet infrastructure and running a qualified custodian. Cybersecurity companies, compliance providers and accounting firms that test internal controls could also gain business when institutions keep assets in-house.
Self-custody would therefore change which intermediaries receive revenue rather than eliminate intermediaries altogether. An asset manager could avoid outsourcing custody for a particular token, but would assume responsibility for key management, authorization controls, cybersecurity, reporting and independent assurance. For smaller advisers, paying a qualified custodian could remain substantially easier than recreating that operating structure internally.
Traditional Custody Banks Still Retain Significant Advantages
Traditional custody banks have reason to monitor the proposal because it could weaken one source of market scarcity without removing their broader competitive advantages. The Bank Policy Institute, Association of Global Custodians and Financial Services Forum warned the SEC last year that crypto custody outside the conventional qualified-custodian framework should face safeguards equivalent to those imposed on banks. The groups said custodian banks collectively held more than $234 trillion in customer assets globally in 2024.
The SEC proposal does not dismiss those concerns. It would impose segregation, control and oversight requirements on state trust companies, while placing substantial conditions on adviser self-custody. Its challenge is instead to the idea that participation within the traditional banking perimeter should, by itself, determine which providers can compete.
BNY operates a digital-asset custody platform and is adding staking through a partnership with Galaxy. State Street has launched a digital-asset platform covering custody, wallet management and infrastructure for tokenized funds and stablecoins. These institutions also have capabilities that a crypto startup cannot easily reproduce through a trust charter alone, including established client relationships, cash management, fund accounting, administration, reporting and integration with conventional portfolios.
The resulting pressure is commercial rather than existential. If custody eligibility broadens, BNY and State Street would need to win crypto business through those capabilities instead of relying primarily on regulatory scarcity. Crypto-native providers could gain a clearer regulatory lane but would still have to persuade institutions to divide relationships away from banks already serving the rest of their portfolios.
Crypto Custody Is Becoming an Institutional Distribution Layer
The SEC proposal would remain subject to a 60-day comment period after publication in the Federal Register, and the final rule could change. Even before a final decision, the proposal points toward a custody market increasingly shaped by asset coverage, support speed, post-custody functionality and the ease with which custody connects to trading, staking, reporting and fund administration.
Each provider could pursue a different competitive strategy. Coinbase could combine asset breadth with institutional trading to bring more of a client’s portfolio onto Prime. Fireblocks could sell infrastructure whether a customer uses qualified custody or operates its own wallets. BNY and State Street could incorporate crypto services into relationships spanning trillions of dollars in conventional assets. Fordefi could provide the technology needed when qualified custodians have not yet added support for an asset an institution wants to hold.
Why This Matters
The proposal could make qualified-custodian access an important part of the institutional life cycle for crypto assets. If regulated money can self-custody a token only until a qualified provider supports it, gaining access to institutional custody platforms could become nearly as important for a crypto issuer as gaining exchange listings.
The next phase of competition would therefore involve more than which companies are legally permitted to hold crypto. It would also concern which providers can make new assets operationally investable for regulated capital, connect custody to the services institutions already use and support a larger share of a client’s portfolio without adding unnecessary operational complexity.
Frequently Asked Questions
What would the SEC crypto custody proposal change?
It would bring qualifying state-chartered trust companies more directly within the custody rules, subject to safeguarding policies, financial audits, internal controls and asset segregation. The proposal could give firms such as Coinbase Custody Trust Company, Gemini Trust Company and Fireblocks Trust Company a clearer path to compete for regulated custody business.
Would advisers be able to self-custody any crypto asset?
Self-custody would be available as a fallback when no qualified custodian is available for an asset. Advisers would need to document that determination, review it at least quarterly and transfer the asset to a qualified custodian as soon as reasonably practicable if one later added support.
When could the proposal take effect?
The proposal is subject to a 60-day comment period after publication in the Federal Register. The final rule could change before adoption, so its ultimate requirements and timing are not yet certain.
