The United States Securities and Exchange Commission (SEC) on Friday released an Investor Bulletin on Crypto Wallets and Custody Guides, outlining best practices and common risks of different forms of crypto storage for the investing public.
The SEC newsletter lists the benefits and risks of different crypto custody methodsincluding self-custody rather than allowing a third party to hold digital assets on behalf of the investor.
If investors choose third-party custody, they should understand the custodian’s policies, including whether it “remortgages” assets held in custody by lending them out or whether the service provider pools client assets into a single pool instead of holding crypto in separate client accounts.
Types of Crypto Wallets have also been described in the SEC guidance, which details the pros and cons of hot, internet-connected wallets and offline storage in cold wallets.
According to the SEC, hot wallets carry a risk of hacking and other cybersecurity threats, while cold wallets carry a risk of permanent loss if offline storage fails, a storage device is stolen, or private keys are compromised.
The SEC’s Cryptocurrency Custody Guide Highlights the Dramatic Regulatory Change at the Agency, which has been hostile to digital assets and the crypto industry under the leadership of former SEC Chairman Gary Gensler.
Related: SEC Sends Warning Letters to ETF Issuers Targeting Untamed Leverage
Crypto Community Celebrates SEC Guidance as a Transformational Change Within the Agency
“The same agency that spent years trying to kill the industry is now teaching people how to use it,” Truth For the Commoner (TFTC) said according to the SEC’s crypto custody guide.
The SEC provides “tremendous value” to crypto investors by educating potential crypto holders about custody and best practices. according to to Jake Claver, CEO of Digital Ascension Group, a company that provides services to family offices.
SEC regulators released the guidance a day after SEC Chairman Paul Atkins. said that the old financial system evolves in chain.
On Thursday, the SEC gave the green light to the Depository Trust and Clearing Corporation (DTCC), a clearing and settlement company, to start tokenizing financial assetsincluding stocks, exchange-traded funds (ETFs), and government debt securities.
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