TLDR
- SEC highlights the risks of crypto custody and urges investor vigilance.
- Crypto custody sector growing at 13% annually, reaching $6 billion by 2030.
- The SEC stresses the importance of clear ownership records for investor protection.
- Self-custody of crypto assets comes with full responsibility for security.
The U.S. Securities and Exchange Commission (SEC) has introduced a new set of guidelines to help retail investors understand the risks associated with holding digital assets. Published on December 12, 2025, by the SEC’s Office of Investor Education and Advocacy, the Investor Bulletin highlights key aspects of crypto custody models and emphasizes the importance of understanding these risks.
As cryptocurrency continues to gain popularity, safeguarding digital assets is becoming increasingly complex. The SEC is responding to the growing number of retail investors by prioritizing education on crypto custody, offering advice to avoid hidden risks in the industry.
SEC Focuses on Educating Retail Investors About Custody Models
The new guidance is aimed at helping retail investors better understand the growing market for cryptocurrency custody and the risks involved in holding digital assets. The SEC pointed out that the crypto custody market has been expanding at a rate of nearly 13% annually, with projections showing it will reach $6.03 billion by 2030. This expansion signifies the increasing volume of assets being held outside traditional financial institutions, which adds complexity to their management and security.
With this rapid growth, the SEC warns investors to carefully consider how third-party custodians handle their assets. The commission cautioned that if a custodian is compromised, goes bankrupt, or faces other disruptions, investors could lose access to their crypto assets.
In its bulletin, the SEC explained that certain custodians may engage in rehypothecation (lending out client assets) or pool client assets rather than keeping them separate. Such practices can increase risks, as evidenced by past market disruptions where losses were amplified due to shared risks across institutions.
The agency stresses that investors should ensure custodians maintain accurate ownership records and outline how they would manage assets in case of failure. This guidance highlights the importance of scrutinizing custodians and being aware of how their policies could impact investor assets.
Self-Custody and its Risks for Investors
Along with outlining the risks associated with third-party custody, the SEC also addressed the growing interest in self-custody of crypto assets. Self-custody allows investors to maintain direct control over their holdings. However, the SEC emphasized the potential risks involved in this approach, particularly the responsibility it places on investors to protect their private keys.
If investors lose their private keys or fail to secure them properly, they risk permanently losing access to their crypto assets, as recovery options are generally unavailable. The SEC pointed out that, while self-custody offers control, it also places full responsibility on the investor for safeguarding their digital assets.
The commission advised those choosing self-custody to carefully manage their wallets and ensure the security of their private keys. The risks of lost or stolen credentials are significant, and the SEC urged investors to take extra precautions when managing their assets independently.
Shifting Focus: Investor Education Over Enforcement
With retail crypto ownership becoming widespread, the SEC’s focus has shifted from regulatory enforcement to investor education. Rather than engaging in debates about whether digital assets belong in investment portfolios, the SEC is focusing on helping investors navigate operational risks related to crypto custody.
The SEC’s guidance aims to provide retail investors with the necessary knowledge to protect their assets, whether they use third-party custodians or choose self-custody. By raising awareness of potential risks and emphasizing proactive steps, the SEC hopes to reduce the likelihood of investors suffering financial losses due to custody-related issues.
As the crypto industry continues to mature, the SEC’s shift toward investor education underscores the need for responsible practices in managing digital assets, while also providing retail investors with the tools they need to make informed decisions.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
