The U.S. Securities and Exchange Commission has proposed a framework that would allow investment advisers and regulated funds to hold crypto assets through expanded custody options, including limited forms of adviser self-custody and state trust companies acting as custodians.

The proposal updates federal custody rules developed largely before digital assets existed. SEC Chair Paul Atkins described it as a compliant pathway for institutions seeking exposure to cryptocurrencies.

"Since the advent of Bitcoin in 2008, the crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure," Atkins said. "Unfortunately, our rules and regulations have not kept pace."

What the proposal changes

The framework addresses a long-standing constraint on institutional crypto adoption: the limited availability of qualified custodial infrastructure for certain digital assets.

Under the proposal, investment advisers and regulated funds could use state trust companies as crypto custodians. Advisers could also custody crypto assets themselves in limited circumstances, including when they determine that no permitted custodian is available.

The SEC clarified that adviser self-custody does not mean investors directly controlling their own private keys. Commissioner Hester Peirce said the term refers to advisers acting as custodians for client assets rather than individual investors choosing personal wallets.

"True self-custody is not the right choice for everyone, but many crypto owners prize being able to custody their own assets," Peirce said in a statement accompanying the proposal.

Why custody matters for institutions

Custody has ranked among the main operational obstacles for institutions entering digital assets. Unlike traditional securities, cryptocurrencies rely on private-key management and blockchain infrastructure, which imposes different requirements for security, access controls and asset recovery.

Many institutions have gained crypto exposure through exchange-traded products and other investment vehicles rather than holding tokens directly. A broader custody framework would give asset managers, hedge funds and other regulated entities additional options for owning assets such as bitcoin without relying exclusively on third-party investment products.

The proposal arrives as regulators continue building separate frameworks for digital assets after Congress failed to advance broader crypto market legislation. The SEC has moved forward with additional crypto-related initiatives, while the Commodity Futures Trading Commission has pursued its own digital asset rulemaking efforts.

Operational implications

The SEC said the changes aim to create clearer conditions for advisers and funds operating under the Investment Advisers Act and investment company rules.

For asset managers, the ability to custody crypto directly could reshape decisions around portfolio construction, risk management and product design. Firms that previously avoided direct ownership because of custody limitations may reassess whether holding digital assets internally is practical.

The proposal does not remove all challenges. Institutions would still need to address cybersecurity risks, valuation procedures, audit requirements and operational controls. The final framework could also change after the SEC reviews public comments during the 60-day comment period.

Position in the wider regulatory push

The custody proposal forms part of a broader effort by U.S. agencies to establish crypto rules without waiting for comprehensive legislation from Congress.

After the Senate failed to advance the CLARITY Act, the SEC moved ahead with other digital asset initiatives, including an innovation exemption framework, while the CFTC submitted its own crypto market rulemaking proposal for review.

Atkins said further proposals were expected, adding that he looked forward to continuing efforts to support the administration's goal of making the United States a leading jurisdiction for crypto activity.

The next stage depends on public feedback, final SEC decisions and how regulators coordinate authority over different parts of the digital asset market. For institutional investors, custody rules remain a foundational issue: they determine not only whether assets can be held, but how firms manage the operational and compliance responsibilities surrounding them.

The 60-day comment window now opens, with final rules expected to determine whether major asset managers adopt direct custody models and whether custodial capacity expands to meet institutional demand.