The SEC's Crypto Storage Advice Is Better Than You Might Expect

The SEC has released guidance on how retail investors should store crypto assets. You can joke as much as you want about the SEC teaching crypto users how to handle crypto, but the document turned out to be genuinely solid. I have been working with cryptocurrencies for many years, and even I found a few useful points in it.

One example stood out to me. The SEC highlights that custodians may commingle client funds or put them to use, and recommends clarifying this in advance. That advice genuinely surprised me. I always assumed that in crypto this had long been the norm: once you hand your assets over to someone else, they are no longer really yours. You cannot expect a custodian to keep them on a separate address and never touch them.

In fact, many people move away from custodial storage precisely because all custodians do this:

• Binance openly admits that it does not have immediate access to all user assets.
• When Bybit was hacked, other exchanges extended it a crypto loan large enough to cover a gap of almost one and a half billion dollars.
• FTX, as we know, collapsed precisely because it used traders' assets.

For a long time, it felt like there was no real alternative. I often say that funds should not be kept on exchanges. If you need to swap something, rabbit.io exists. We do not store your assets: you send funds from a non-custodial wallet and receive them into a non-custodial wallet.

But the SEC, drawing on its TradFi experience, suggests a surprisingly simple solution:

• before using a custodian, ask directly whether they will use your funds or mix them with others;
• if the answer is "yes", refuse their services and look for another provider.

This approach can create demand for honest custodial storage. And where there is demand, supply eventually follows.

Not everyone is ready to take full responsibility for self-custody, after all. It turns out that even in the crypto economy, there may be a safe place for those who are not.