The US SEC has proposed rules that would let investment advisers and funds hold client crypto themselves or through state trust companies. The proposal was published on Thursday, October 1. For the market, it is an attempt to remove one of the reasons advisers kept tokens out of client portfolios.
What the proposal actually says
The main change applies to advisers who cannot find a qualified custodian for a specific token. If no suitable custodian exists, the adviser may hold client assets directly. There are conditions. For every asset, the adviser must show that no permitted custodian is available and revisit that conclusion every quarter.
Once a custodian appears, the assets must move as soon as reasonably practicable. Self-custody requires safeguards for private keys, cybersecurity and separate records for each client's holdings. At least two authorized people must approve any transfer. Regulated funds could also keep crypto with their adviser if the adviser meets these requirements and the fund's board oversees the arrangement.
The second part of the proposal opens the door to state trust companies. They could act as custodians if they hold authorization from their state regulator to custody crypto, have procedures against loss and theft, and provide audited financial statements and internal control reports. Client assets must be kept apart from the company's own funds.
Why advisers stayed on the sidelines
The problem is practical. Current rules call for a qualified custodian, and for many tokens beyond Bitcoin and Ethereum there simply is none. In May 2025 the Digital Chamber told the SEC that some advisers had turned down token allocations or asked portfolio companies to hold the coins until custody became available.
"The crypto asset market has grown from a niche curiosity into a multi-trillion-dollar asset class to which investors actively seek exposure. Unfortunately, our rules and regulations have not kept pace."
- Paul Atkins, SEC Chair, from the statement on the proposal, October 1, 2026
SEC Commissioner Hester Peirce compared the uncertainty to a roller coaster, with advisers gritting their teeth and holding on while they waited for workable rules. The proposal landed days before Peirce leaves the commission, CoinDesk reports. Mark Uyeda added that adviser custody creates an inherent conflict of interest, so fiduciary duties stay in place.
For the advisers themselves, the story is even simpler. A client asks for a token, the adviser checks the list of custodians and finds nothing. Then it is either a refusal or a workaround. The new rules offer an official path instead of workarounds, which lowers legal risk for small firms that never had the resources for their own experiments.
How demand for crypto could change
For exchange-traded funds, the issuer solves custody, so advisers had an easy route only to ETFs. Direct token positions stayed a puzzle. According to Cointelegraph, spot Bitcoin ETFs drew $6.3 billion in the third quarter, which shows how much money already flows where custody is settled.
If the proposal becomes a rule, the bar for direct purchases drops. Tokens outside the top ten stand to gain most, since qualified custodians are scarce there. Don't expect an instant inflow. First come 60 days of comments, then a final vote by the commission.
The market has reacted calmly so far. Bitcoin sits near $86,000, and this week's moves came from inflation data and bond yields, not from regulatory news.
New products are already appearing. Bitwise recently launched the first US spot NEAR ETF with staking rewards, and according to The Block, spot Bitcoin ETFs drew $2.7 billion in September. The nine-day inflow streak ended in early October with $149 million of outflows, so institutional demand is uneven. Custody rules do not guarantee money. They only remove an obstacle for those who already want to buy.
Risks that did not go away
Self-custody looks like a convenient exit, but it shifts responsibility onto the advisers themselves. The regulator admits this and attached conditions to the permission. What matters for the market is how those conditions will work in practice.
- Self-custody creates a conflict of interest, and the SEC says so openly.
- A quarterly review may force assets to move to a custodian as soon as one shows up on the market.
- A two-signer rule does not protect against a breach of the system itself, and September hacks took $768 million.
So firms will look for key management solutions, from hardware wallets to institutional vaults. Demand for that infrastructure may grow before demand for the tokens themselves.
What comes next
The SEC will take comments for 60 days after the proposal appears in the Federal Register. The move is part of a wider course: after the CLARITY Act stalled in the Senate, the SEC and CFTC are assembling rules under their existing powers. The CFTC has already sent its crypto market proposal to the White House for review, and the SEC has opened a path for trading tokenized stocks.
What should you watch? The number and content of comments from custodians, exchanges and adviser associations, since they most often change the final wording. A second signal is whether state trust companies appear that are ready to custody tokens beyond Bitcoin and Ethereum. A third is new ETF filings for smaller assets.
Until a final text arrives, the rules remain a draft. The market now has a concrete document with numbers and conditions, and it can be discussed on the merits.
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