The U.S. Securities and Exchange Commission (SEC) has issued new guidance to help retail investors better protect their crypto holdings.
On December 12, the SEC’s Office of Investor Education and Advocacy issued an Investor Bulletin. This document outlines standard cryptocurrency custody models and the risks associated with holding digital assets.
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SEC warns retail investors about hidden crypto asset storage risks
The SEC’s emphasis comes as the business of securing digital assets continues to grow.
Notably, the crypto custody sector is growing at nearly 13% annually and is expected to reach $6.03 billion by 2030, according to industry estimates.
This growth highlights the scale of assets currently held outside traditional financial infrastructure and the stakes involved in how those assets are managed.
Against this backdrop, the agency urged investors to vet third-party custodians and understand how platforms handle customer funds.
“If a third-party custodian is hacked, shut down, or goes bankrupt, you may lose access to your crypto assets,” the SEC warned.
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The bulletin notes that some companies are rehypothesizing or lending out client assets, while others are pooling client assets rather than separating them.
According to the SEC, such practices have spread risk across financial institutions and magnified losses during past market stresses.
As a result, the SEC recommends that investors determine whether the custodian maintains clear ownership records. It also urges investors to evaluate how the platform handles their assets in the event of an outage.
This guidance highlights that custodial regimes can have a material impact on investor outcomes in the event of a disruption, even if the underlying market price has not changed.
The bulletin also addresses self-custody, acknowledging its appeal to investors who want direct control over their holdings.
At the same time, the SEC warned that controlling your own wallet transfers full responsibility for protecting your private keys to investors. Losing credentials typically results in a permanent loss of assets with little chance of recovery, the agency said.
“Self-custody also means that you are solely responsible for the security of the private keys of your crypto assets. If your crypto wallet is lost, stolen, damaged, or hacked, you may permanently lose access to your crypto assets,” the SEC said.
On the other hand, this focus reflects a broader shift in the tone of regulators.
Because private ownership of cryptocurrencies is already widespread, the SEC is prioritizing education over enforcement and operational risk over debating whether digital assets belong in investment portfolios.
