The SEC has unveiled a new proposal that could potentially direct a portion of $100 trillion in managed funds toward the cryptocurrency market, initiating a competition to determine which cryptocurrencies will gain early approval.
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Under the SEC’s new proposed cryptocurrency custody regulation, registered investment advisers are permitted to hold Bitcoin (CRYPTO:BTC) and other cryptocurrencies on behalf of their clients. Given that these advisers manage assets exceeding $100 trillion, even a minor transition towards crypto could lead to a large influx of capital into this sector.
Historically, many investment advisers have avoided investing in Bitcoin within managed accounts due to strict custody requirements. Current regulations mandate the employment of a qualified custodian, yet they lack clarity on which entities are authorized to hold private keys. If the new proposal is adopted, it opens an essential discussion: which cryptocurrencies will likely be the first beneficiaries of adviser investments?
New Custodial Options for Investment Advisers from the SEC
Investment advisers who manage clients’ assets generally have to work with a qualified custodian—a regulated bank or brokerage firm responsible for asset security. These regulations initially catered to traditional assets like stock certificates, but the distinct characteristics of cryptocurrencies, governed by private keys, have complicated compliance. Notably, the SEC rescinded a 2023 proposal regarding custodial safeguards on June 12, 2025, creating a gap until this recent development.
The current proposal seeks to revise the Investment Advisers Act of 1940 and the Investment Company Act of 1940. This framework would permit state trust entities to act as custodians if they establish documented safeguarding processes and submit annual financial audits. Registered broker-dealers could also meet the criteria based on customer safety standards. Furthermore, regulated investment funds could diversify their crypto assets, with airdropped coins potentially meeting new criteria under specified conditions.
SEC Chair Paul Atkins remarked that cryptocurrency has transformed “from a niche curiosity into a multi-trillion-dollar asset class” since the 2008 release of the Bitcoin white paper, highlighting that the “rules and regulations have not evolved at the same pace.” This proposal follows recent crypto regulations introduced by the SEC in September, relating to the Senate’s unsuccessful push for the CLARITY Act.
Investment Advisers May Self-Hold Crypto Keys Under Certain Conditions
A significant feature of this proposal is the allowance for advisers to retain private keys themselves, provided they can demonstrate an absence of approved custodians for those digital assets. To ensure security, any use of these keys must receive authorization from at least two individuals, and each client’s assets must be housed in distinct addresses.
Additionally, an independent auditor is required to assess the adviser’s custody protocols within a six-month timeframe, and advisory boards will conduct quarterly evaluations of these determinations. Such stringent prerequisites may make self-custody financially unfeasible for many advisers, likely nudging them to opt for cryptocurrencies already supported by custodians.
Spot ETFs Indicate Potential Paths for Adviser Investments
Spot cryptocurrency exchange-traded funds (ETFs) give insight into the allocation of regulated investments once a compliant avenue is established. As of September 25, 2026, US spot Bitcoin ETFs managed $108 billion, while Ethereum (CRYPTO:ETH) funds accounted for $17.8 billion. In contrast, Solana (CRYPTO:SOL) attracted $2 billion, and XRP (CRYPTO:XRP) secured $1.8 billion.
These statistics indicate that Bitcoin investment accounts command around six times the total funds of Ethereum and over fifty times those of Solana, with Bitcoin ETFs already possessing 6.29% of all Bitcoin.
Although the proposal does not define specific cryptocurrencies, it will ultimately be the custodians who determine which coins advisers can access, given that the costs associated with complete self-custody may pose challenges for many firms.
What Coins Will See The First Benefits from the SEC Crypto Custody Regulation?
Bitcoin is expected to be the initial cryptocurrency to be incorporated into adviser accounts, with Ethereum likely to follow, as custodians already provide support for both. Data from ETFs indicates that regulated investments have a strong inclination towards these digital assets. While this proposal eliminates a major regulatory hurdle that has deterred advisers from entering the crypto space, the SEC needs to finalize these regulations before any changes are implemented.
A 60-day comment period will begin following the proposal’s publication in the Federal Register. If the finalized regulations feature an expanded roster of custodians and relax the conditions for self-custody, smaller cryptocurrencies like Solana and XRP may also quickly find their way into managed accounts. Ultimately, does the SEC’s crypto custody regulation mainly reinforce the advantages already held by Bitcoin and Ethereum?
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