SEC Crypto Custody Proposal Opens Door to State Trust Companies

A custody rulebook built for crypto

The Securities and Exchange Commission has filled what was arguably the biggest gap left in its crypto agenda. On October 1, 2026, it proposed rules setting out how registered investment advisers, registered investment companies and business development companies can hold crypto assets under the Advisers Act and the Investment Company Act.11 The agency says the package would modernize custody requirements and remove obstacles that have kept advisers from giving crypto-related advice. It would also allow self-custody in some cases and let state trust companies act as custodians.11

Chairman Paul Atkins described the proposal as giving advisers and funds a compliant path where none existed before. He said the current rules were written for traditional assets in an earlier era.14 The release runs about 760 pages and has a 60-day comment period.14 It appeared in the Federal Register on October 6, so comments are due in early December.19

The proposal is mainly about plumbing, not market structure. Even so, it matters a great deal to crypto companies, custody banks and the asset managers who want to sell crypto exposure to ordinary investors. It also arrives while Congress remains stuck.

The two pathways, and why "self-custody" is narrower than it sounds

The proposal gives advisers and funds two new routes. The first is to use state-chartered trust companies. The second is for the adviser or fund to hold the assets itself. Early headlines focused on self-custody. A closer read shows the agency means something much narrower than what the crypto industry usually means by the term.

The SEC uses "self-custody" to describe an asset-management practice. It does not mean individuals holding their own keys.14 An adviser could hold client crypto only after concluding in writing that no qualified custodian will take the asset, and it would have to repeat that check every quarter.16 Croke Fairchild points out that cost cannot be a reason for skipping a custodian. Once a custodian becomes available, the asset would have to move there as soon as reasonably practicable.16 An SEC official told CoinDesk the self-custody route would probably be used rarely, for example for a newly launched token that custodians do not yet support.14

The conditions are strict. Advisers would need joint authorization from at least two designated people for transfers, and one of them must be a management person.13 They would also need independent accountant internal-control reports and quarterly client statements.20 Holding any portion of a private key would count as self-custody, and the adviser would have to hold the keys exclusively. That effectively rules out the shared-key multi-party setups common in the industry.16 Law firm commentary agrees on the mechanics. The open questions are practical ones. Sidley flags the problem of applying the two-person rule to automated smart-contract transfers.13 Croke Fairchild notes that the SEC is asking whether self-custody should be allowed when a custodian exists but cannot support staking, governance or the trading a strategy needs.

In short, the self-custody provision is a safety valve, not a loophole. The state trust company route is the part most likely to change how custody actually works.

The custody-bank angle: state trust companies get codified

Under the proposal, a state trust company is an entity organized under state law, supervised by a state banking authority and allowed to exercise fiduciary powers. A fund would not need to show it qualifies as a "bank" under the Investment Company Act. Before hiring one, and every year after, an adviser or fund would need a reasonable basis to believe the company is authorized by its state banking regulator to provide crypto custody. Client assets would have to be kept separate from the company's own assets.21

This turns a 2025 staff no-action letter into a formal rule. Sidley says the conditions closely follow that letter. It recommends that firms relying on the letter compare their diligence files against the proposal now.23 There is one notable difference. Croke Fairchild says the proposal drops the letter's contractual ban on rehypothecation.16 Commenters will likely push on that point, because reusing client assets is exactly the risk custody rules exist to prevent.

The proposal also widens custody options beyond crypto. Funds could use any registered broker-dealer whose custody falls under the Exchange Act customer protection rule, not just exchange members.20 Some coverage in August said the rule could open the market to firms like Anchorage Digital, Paxos and BitGo, which now hold trust charters that did not exist when the earlier version was drafted. That fits the direction of the final text, but the eventual list of winners will depend on the rule adopted, not this draft.

A notable split on bitcoin, ether and solana

The least-discussed detail may matter most to the crypto market. For ordinary advisory clients, including separately managed accounts and private funds, the SEC says bitcoin, ether and solana are neither funds nor securities. That puts them outside the Advisers Act custody rule.13 For regulated funds, the same assets count as "securities and similar investments," so they must be included in the funds' crypto custody arrangements.13 Sidley calls this different treatment a marked departure from the withdrawn 2023 safeguarding proposal.13

The practical result is uneven. A private fund adviser holding bitcoin would face lighter custody rules than a mutual fund or ETF holding the same coin. Payment stablecoins issued under the GENIUS Act and tokenized deposits would be treated as funds, and tokenized securities would be treated as securities.16 The proposal does not create a decentralized finance exception. A client asset placed in a smart contract must stay with the adviser or a permitted custodian, and a deposit that takes it out of custody would not be allowed.16

Rulemaking instead of legislation

The custody proposal is one of several connected moves. In August the SEC proposed Regulation Crypto Assets. It includes a startup exemption of up to $5 million over four years, a fundraising exemption of up to $75 million per year, crypto-specific disclosure rules and preemption of state registration for qualified purchasers.12 Its comment period closed on October 20.15 On September 17 the agency granted temporary relief allowing qualifying tokenized securities venues to trade tokenized NMS stock through permissioned automated market makers without registering as exchanges.24 CoinDesk reports that with custody done, the SEC has now addressed every major item on the crypto agenda Atkins originally set.14

The backdrop is political. The Senate failed to invoke cloture on the CLARITY Act on September 15. On October 5 the CFTC published an advance notice of proposed rulemaking for retail crypto commodity transactions under its existing authority.15 Baker Botts warns that a framework built through agency rules and exemptions can be reversed by future commissions more easily than a statute.15 Staffing adds to that weakness. Hester Peirce, who led the SEC's Crypto Task Force, left as the proposal came out. Coverage says that leaves two commissioners, both Republicans, to finish the rule.14

My reading is that the agency is moving fast because it may not have long. A rule adopted by a two-member commission with no Democratic input stands on weaker ground than one passed by Congress. Industry groups should treat it that way when planning.

Where bitcoin treasury companies fit

The custody rule does not govern companies that hold bitcoin on their own balance sheets. It does shape the environment around them. Trackers broadly agree on the size of the sector but report different figures. One counted 173 entities holding about 1.30 million BTC as of October 19.1 Another counted 181 companies with about 1.22 million BTC on October 2.10 A third cited 197 public companies with roughly 1.27 million BTC in late September.6 All agree that Strategy dominates. It held 848,000 BTC as of October 4, bought for about $63.97 billion at an average price near $75,441.7 One tracker puts its share at about 65% of the corporate total.1

The sector's economics have been under strain. Twenty One, Metaplanet and Nakamoto all traded below 1x mNAV on September 24. At that level, issuing new shares to buy bitcoin dilutes holders' bitcoin per share.6 With bitcoin back above $80,000 in mid-to-late October, tracked public holders moved back to aggregate unrealized gains of roughly $10.2 billion. Metaplanet, with an average cost near $88,551, was still underwater.8 Some newer entrants are taking a different approach. Supercycle Finance says it plans to sell bitcoin near price peaks instead of only accumulating.5

This is where the custody proposal and the treasury trade meet. Treasury stocks became popular partly because they were a simple, regulated-looking way to get bitcoin exposure. A clear custody path for advisers and regulated funds makes it easier to hold the asset directly through compliant vehicles. That could weaken one argument for paying a premium for a corporate wrapper. Treasury companies already rely on institutional custodians. MARA, for example, keeps part of its bitcoin with Fidelity Custody, according to its filings.9 For custody banks, demand from funds, advisers and corporate treasuries points the same way: more assets with regulated, segregated custodians. The SEC's proposal would make that the expected default.