The U.S. Securities and Exchange Commission (SEC) released an investor guide on cryptocurrency wallets and custody on Friday. This document examines the characteristics and risks of each type of cryptocurrency storage method from the perspective of the average investor, detailing considerations before investing.
The SEC broadly categorizes asset custody into "self-custody" and "third-party custodial," outlining the pros and cons of each approach. Self-custody, where investors manage their own private keys, offers the advantage of complete control over their assets. However, loss of these keys carries a significant risk of permanent loss of assets. Conversely, third-party custodial involves an external entity, such as a cryptocurrency exchange, managing assets on their behalf. While this offers convenience and expertise, it can also be subject to risks depending on the custodian's credibility and internal policies.
The SEC emphasized that investors should carefully review the custodian's asset management policies, particularly when choosing a third-party custody method. For example, some institutions may not keep client assets in separate accounts but instead commingle them with other clients' assets or engage in "rehypothecation," lending (reusing) client assets to external parties. In such cases, investors are at greater risk of losses if the institution goes bankrupt or experiences asset management issues, so special caution is advised.
This warning is being accepted as a guideline to protect general investors amidst the growing volatility and regulatory risks in the cryptocurrency market. In particular, the SEC's issuance of this "advisory warning" in the US, where regulatory standards for exchanges and custody service providers are not clearly established, is raising both expectations and concerns about the future direction of regulation.
The SEC plans to continue to provide education and information on the basic concepts and risk factors that ordinary investors should understand when using cryptocurrency-related services.
๐ Market Interpretation
The SEC's warning to investors regarding cryptocurrency custody practices could be interpreted as a harbinger of increased regulation of exchanges and custodians. In particular, issues such as the reuse and commingling of user assets have become key targets for regulators since the FTX incident.
๐ก Strategy Points
Before entrusting your cryptocurrency to a third party, it's essential to confirm the custodian's asset management policy and financial soundness. Even if you manage your private keys yourself, it's essential to design a backup strategy that takes into account the risk of loss.
๐ Glossary
Custody: Refers to the act or service of storing and managing assets on behalf of another.
Rehypothecation: The act of lending or securitizing customer assets to a third party using them as collateral, which carries with it derivative risk.
TP AI Precautions
This article was summarized using a TokenPost.ai-based language model. Key points in the text may be omitted or inaccurate.
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