The SEC is turning crypto custody into a fight over asset coverage

A proposed custody regime would give state trust companies a permanent place in regulated crypto and let advisers hold assets themselves when no custodian will. That shifts the advantage toward firms that can support more assets, while weakening the charter moat traditional banks have been building.

The SEC’s latest crypto proposal changes something more important than where an investment adviser can store Bitcoin. If adopted, it would change what custodians have to compete on by giving state trust companies a permanent place in regulated crypto custody and allowing advisers to hold assets themselves when no permitted custodian will. That shifts the market away from a simple question of who has the right charter and toward a more commercial one: who can support the portfolio an institution actually wants to own.

Registered advisers and funds have historically operated inside a custody framework built around banks, broker-dealers and other regulated institutions. Crypto exposed a gap in that model because many of the assets investors want are not supported by traditional custodians, while some of the firms best equipped to hold them are state-chartered trust companies whose status under federal custody rules has been less straightforward. The proposed rules would narrow that gap, formalizing a path that has operated under staff no-action relief since September 2025 and permitting adviser self-custody when no qualified custodian supports the asset, subject to substantial controls.

If adopted, the result would be a more competitive custody market in which regulatory status still matters, but no longer answers the commercial question by itself. Crypto-native custodians could gain a clearer route to institutional clients, while banks would have to defend relationships on asset coverage, service breadth and integration with the rest of a client’s portfolio.

Coinbase, Gemini and Fireblocks get a clearer lane

Coinbase, Gemini and Fireblocks have spent years building regulated custody businesses around trust charters rather than conventional commercial-bank models. Coinbase Prime custody is provided through Coinbase Custody Trust Company, a New York-chartered trust company regulated by NYDFS that advertises support for more than 470 assets. Gemini Custody operates through Gemini Trust Company, while Fireblocks has added its own NYDFS-chartered Fireblocks Trust Company alongside the wallet and transaction infrastructure it already sells to institutions.

The SEC gave firms like these an interim opening last year when staff said it would not recommend enforcement against advisers and funds treating qualifying state trust companies as permitted crypto custodians. The new proposal would put state trust companies directly into the rules, subject to safeguarding policies, financial audits, internal controls and asset segregation. That does not erase the value of a federal charter, but it reduces the degree to which regulatory status alone can separate one provider from another.

That matters because several crypto firms spent years moving in the opposite direction. Anchorage Digital obtained a federal charter in 2021, while BitGo and Fidelity Digital Assets have pursued federally regulated custody structures as the market matured. Those structures still carry advantages, particularly with institutions that prefer a federal banking framework, but the SEC proposal would make them less exclusive as a route into regulated crypto custody.

The most valuable feature may become the asset list

The most important competitive detail may be the rule governing unsupported assets. An adviser would only be allowed to self-custody a crypto asset after determining that no qualified custodian is available to hold it, and that determination would have to be revisited at least quarterly. If a custodian subsequently adds support, the adviser would have to move the asset to that custodian as soon as reasonably practicable.

That turns asset coverage into a customer-acquisition tool. A long token list is not just a product specification if it determines whether a regulated asset manager can outsource custody. A fund interested in an emerging token might initially have to use its adviser’s own infrastructure because no qualified custodian supports it. Coinbase, Fireblocks Trust, Gemini or another provider could then add the asset and create a regulatory reason for the adviser to move it onto that platform.

For custodians, the asset-listing roadmap becomes part of the sales strategy. The faster a provider can safely diligence and support new networks and tokens, the larger the portion of a client’s portfolio it can capture. For crypto issuers, the logic runs in the other direction: qualified-custodian support could become part of institutional distribution, because exchange liquidity matters less if regulated investors cannot operationally hold the asset.

Self-custody creates a market for infrastructure, but it will not be cheap

The self-custody provision sounds like a direct threat to custodians, but the proposal treats it as a fallback rather than a broad substitute.

 Advisers would need documented safeguarding expertise, cybersecurity controls, regular reviews and independent internal-control reporting. The Commission estimates specified self-custody requirements would cost an adviser about $433,833 annually on average, including an estimated $376,000 for the required internal-control report, and says the largely fixed costs could limit the option to firms with enough scale to justify it.

Those requirements create business for a different part of the stack. Fordefi sells institutional self-custody infrastructure built around MPC key management and policy controls, while Fireblocks operates on both sides of the market by selling institutional wallet infrastructure and running a qualified custodian. Cybersecurity firms, compliance providers and accounting firms responsible for testing internal controls can also benefit when an institution chooses to keep assets in-house.

Self-custody therefore does not eliminate intermediaries so much as change which ones get paid. An asset manager can avoid outsourcing custody of a particular token, but it takes on key management, authorization controls, cybersecurity, reporting and independent assurance. For smaller advisers, paying a qualified custodian may remain considerably easier than recreating that operating stack internally.

Regulatory scarcity is fading, but advantages persist for incumbents 

Traditional custody banks have reason to watch the proposal because it weakens one source of scarcity without taking away their broader advantages. The Bank Policy Institute, Association of Global Custodians and Financial Services Forum warned the SEC last year that crypto custody conducted outside the conventional qualified-custodian framework should face safeguards equivalent to those imposed on banks. Together, custodian banks held more than $234 trillion in customer assets globally in 2024, according to the groups.

The SEC did not simply dismiss those concerns. Its proposal imposes segregation, control and oversight requirements on state trust companies and substantial conditions on adviser self-custody. What it challenges is the idea that being inside the traditional bank perimeter should itself determine who can compete.

BNY operates a digital-asset custody platform and is adding staking through a partnership with Galaxy, while State Street has launched a digital-asset platform covering custody, wallet management and infrastructure for tokenized funds and stablecoins. Those firms have advantages a crypto startup cannot replicate with a trust charter: existing client relationships, cash management, fund accounting, administration, reporting and integration with conventional portfolios.

The pressure is therefore commercial rather than existential. If custody eligibility broadens, BNY and State Street have to win crypto business on those capabilities instead of regulatory scarcity alone. Crypto-native firms face the opposite problem: they may gain a clearer regulatory lane, but still have to persuade institutions to split relationships away from banks that already service the rest of the portfolio.

Custody is becoming the distribution layer

The SEC proposal remains subject to a 60-day comment period after publication in the Federal Register, and the final rule could change. Even so, it points toward a custody market in which competition is increasingly about asset coverage, speed of support, what clients can do with assets after they arrive, and how easily custody connects to trading, staking, reporting and fund administration.

That gives each provider a different route to win business. Coinbase can use asset breadth and institutional trading to pull more of a client’s portfolio onto Prime. Fireblocks can sell infrastructure whether a customer chooses qualified custody or operates its own wallets. BNY and State Street can bundle crypto into relationships that already span trillions of dollars of conventional assets. Fordefi can sell the technology required when the custodian market has not yet caught up with the assets an institution wants to own.

For crypto issuers, the same shift creates a new gatekeeper. If regulated money can only self-custody a token until a qualified custodian supports it, getting onto institutional custody platforms may become almost as important as getting onto an exchange. The next custody battle is therefore about more than who is allowed to hold crypto. It is about which providers can make the next asset operationally investable for regulated capital.