The US Securities and Exchange Commission's latest crypto custody proposal would do more than determine where an investment adviser can store Bitcoin. If adopted, it would change what custodians have to compete on: state trust companies would gain a permanent place in regulated crypto custody, and advisers would be allowed to hold assets themselves when no permitted custodian will. That shifts the market away from a narrow question — who holds the right charter — toward a commercial one: who can support the portfolio an institution actually wants to own.

Registered advisers and funds have historically operated inside a custody framework built around banks, broker-dealers and other regulated institutions. That framework is the qualified-custodian requirement under the Investment Advisers Act of 1940, which generally obliges registered advisers to maintain client funds and securities with designated types of financial institutions — a rule the SEC tightened in 2009, after the Madoff Ponzi scheme, so that an adviser cannot be the only party vouching for where client assets sit. Crypto exposed a gap in that model. Many of the assets investors want are not supported by traditional custodians, while some of the firms best equipped to hold them — state-chartered trust companies — have occupied less straightforward ground under federal custody rules. The proposal, detailed in SEC rulemaking materials, would narrow that gap, formalizing a path that has operated under staff no-action relief since September 2025 and permitting adviser self-custody where no qualified custodian supports an asset, subject to substantial controls.

If adopted, the result would be a more competitive custody market in which regulatory status still matters but no longer answers the commercial question on its own. Crypto-native custodians could gain a clearer route to institutional clients, while banks would have to defend relationships on asset coverage, service breadth and integration with the rest of a client's portfolio.

Coinbase, Gemini and Fireblocks get a clearer lane

Coinbase, Gemini and Fireblocks have spent years building regulated custody businesses around trust charters rather than conventional commercial-bank models. Coinbase Prime custody is provided through Coinbase Custody Trust Company, a New York-chartered trust company regulated by the New York Department of Financial Services (NYDFS) that advertises support for more than 470 assets. Gemini Custody operates through Gemini Trust Company, while Fireblocks has added its own NYDFS-chartered Fireblocks Trust Company alongside the wallet and transaction infrastructure it already sells to institutions. New York has granted such limited-purpose trust charters for virtual-currency custody since 2015, and they place the holder under state banking supervision that includes capital requirements and examinations.

The SEC gave firms like these an interim opening last year, when staff said it would not recommend enforcement against advisers and funds treating qualifying state trust companies as permitted crypto custodians. The new proposal would write state trust companies directly into the rules, subject to safeguarding policies, financial audits, internal controls and asset segregation. That does not erase the value of a federal charter, but it reduces how far regulatory status alone can separate one provider from another.

That matters because several crypto firms spent years moving in the opposite direction. Anchorage Digital obtained a federal charter in 2021, while BitGo and Fidelity Digital Assets have pursued federally regulated custody structures as the market matured. Those structures still carry advantages, particularly with institutions that prefer a federal banking framework, but the SEC proposal would make them less exclusive as a route into regulated crypto custody.

The most valuable feature may become the asset list

The rule governing unsupported assets may be the proposal's most consequential competitive detail. An adviser would be allowed to self-custody a crypto asset only after determining that no qualified custodian is available to hold it, and that determination would have to be revisited at least quarterly. If a custodian subsequently adds support, the adviser would have to move the asset to that custodian as soon as reasonably practicable.

That turns asset coverage into a customer-acquisition tool. A long list is no longer just a product specification if it determines whether a regulated asset manager can outsource custody at all. A fund interested in an emerging token might initially have to rely on its adviser's own infrastructure because no qualified custodian supports it. Coinbase, Fireblocks Trust, Gemini or another provider could then add the asset, creating a regulatory reason for the adviser to move it onto that platform.

For custodians, the asset-listing roadmap becomes part of the sales strategy: the faster a provider can safely diligence and support new networks and tokens, the larger the share of a client's portfolio it can capture. For crypto issuers, the logic runs in the opposite direction. Qualified-custodian support could become part of institutional distribution, because exchange liquidity matters less if regulated investors cannot operationally hold the asset.

Self-custody creates a market for infrastructure, but it will not be cheap

The self-custody provision may sound like a direct threat to custodians, but the proposal treats it as a fallback rather than a broad substitute. Advisers would need documented safeguarding expertise, cybersecurity controls, regular reviews and independent internal-control reporting. According to cost estimates in the SEC's proposal, the specified self-custody requirements would cost an adviser about $433,833 annually on average, including an estimated $376,000 for the required internal-control report, and the largely fixed costs could limit the option to firms with enough scale to justify it.

Those requirements create business for a different part of the stack. Fordefi sells institutional self-custody infrastructure built around MPC key management and policy controls, while Fireblocks operates on both sides of the market by selling institutional wallet infrastructure and running a qualified custodian. Cybersecurity firms, compliance providers and the accounting firms responsible for testing internal controls can also benefit when an institution chooses to keep assets in-house.

Self-custody therefore does not eliminate intermediaries so much as change which ones get paid. An asset manager can avoid outsourcing custody of a particular token, but it takes on key management, authorization controls, cybersecurity, reporting and independent assurance. For smaller advisers, paying a qualified custodian may remain considerably easier than recreating that operating stack internally.

Regulatory scarcity is fading, but incumbents keep advantages

Traditional custody banks have reason to watch the proposal, because it weakens one source of scarcity without removing their broader advantages. The Bank Policy Institute, the Association of Global Custodians and the Financial Services Forum warned the SEC last year that crypto custody conducted outside the conventional qualified-custodian framework should face safeguards equivalent to those imposed on banks. Together, custodian banks held more than $234 trillion in customer assets globally in 2024, according to the groups.

The SEC did not simply dismiss those concerns. Its proposal imposes segregation, control and oversight requirements on state trust companies and substantial conditions on adviser self-custody. What it challenges is the idea that being inside the traditional bank perimeter should itself determine who can compete.

BNY operates a digital-asset custody platform and is adding staking through a partnership with Galaxy, while State Street has launched a digital-asset platform covering custody, wallet management and infrastructure for tokenized funds and stablecoins. Those firms have advantages a crypto startup cannot replicate with a trust charter: existing client relationships, cash management, fund accounting, administration, reporting and integration with conventional portfolios.

The pressure is therefore commercial rather than existential. If custody eligibility broadens, BNY and State Street would have to win crypto business on those capabilities instead of regulatory scarcity alone. Crypto-native firms face the opposite problem: they may gain a clearer regulatory lane, but still have to persuade institutions to split relationships away from banks that already service the rest of the portfolio.

Custody is becoming the distribution layer

The SEC proposal remains subject to a 60-day comment period after publication in the Federal Register, and the final rule could change. The comment process gives the bank and custody groups that warned the SEC last year, along with crypto custodians and their institutional clients, a formal channel to press for revisions before any adoption. Until a final rule is in place, the docket — file number S7-2026-35 — and qualified custodians' asset-support announcements are the concrete items to track.

Each provider has a different route to winning business under that model. Coinbase can use asset breadth and institutional trading to pull more of a client's portfolio onto Prime. Fireblocks can sell infrastructure whether a customer chooses qualified custody or operates its own wallets. BNY and State Street can bundle crypto into relationships that already span trillions of dollars of conventional assets. Fordefi can sell the technology required when the custodian market has not yet caught up with the assets an institution wants to own.

For crypto issuers, the same shift creates a new gatekeeper. If regulated money can only self-custody a token until a qualified custodian supports it, getting onto institutional custody platforms may become almost as important as getting onto an exchange. The next custody battle is therefore about more than who is allowed to hold crypto. It is about which providers can make the next asset operationally investable for regulated capital.