SEC Issues Guidance on Crypto Wallet and Custody Practices

According to Cointelegraph, the United States Securities and Exchange Commission (SEC) released an investor bulletin on Friday, detailing best practices and potential risks associated with various forms of cryptocurrency storage. The bulletin aims to educate the investing public on the benefits and drawbacks of different crypto custody methods, including self-custody and third-party custody options. The SEC's guidance emphasizes the importance of understanding the policies of third-party custodians, particularly regarding asset rehypothecation and the commingling of client assets. Investors are advised to be aware of whether their digital assets are being lent out or pooled together, rather than held in segregated accounts. Additionally, the bulletin outlines the pros and cons of different crypto wallet types, such as hot wallets, which are connected to the internet, and cold wallets, which offer offline storage. While hot wallets are susceptible to hacking and cybersecurity threats, cold wallets pose risks of permanent loss if the storage device fails, is stolen, or if private keys are compromised. The release of the SEC's crypto custody guide marks a significant shift in the agency's approach to digital assets, reflecting a departure from the hostile stance under former SEC Chairman Gary Gensler. The crypto community has welcomed this change, viewing the guide as a transformative step in the agency's engagement with the industry. Truth For the Commoner (TFTC) commented on the guide, noting that the SEC is now actively educating the public on how to engage with the crypto industry, a stark contrast to its previous efforts to stifle it. Jake Claver, CEO of Digital Ascension Group, praised the SEC for providing valuable information to crypto investors, highlighting the importance of educating prospective holders about custody and best practices. The publication of the guide coincided with remarks from SEC Chair Paul Atkins, who acknowledged the transition of the legacy financial system to blockchain technology. On Thursday, the SEC approved the Depository Trust and Clearing Corporation (DTCC) to begin tokenizing financial assets, including equities, exchange-traded funds (ETFs), and government debt securities, signaling a move towards integrating traditional finance with blockchain solutions.