Custody
In crypto, custody means how and where your assets are held, and who controls the keys. The SEC describes two main routes: self-custody, where you hold the keys, and third-party custody, where a platform holds them. Each puts the main risk somewhere different.
What does custody mean in crypto?
The SEC's December 2025 investor bulletin defines custody as how and where you store and access your crypto assets. Because control comes from the private key, the practical question is always the same: who holds it? Whoever holds the keys can move the assets.
What is the difference between self-custody and third-party custody?
| Self-custody | Third-party custody | |
|---|---|---|
| Who controls the keys | You, alone | The custodian, often a trading platform |
| Main failure | Lost, stolen, damaged or hacked wallet | Custodian hacked, shut down or bankrupt |
| Who is responsible | You alone | You rely on the custodian |
Self-custody can use a hot or cold wallet. Either way, the SEC stresses you alone are responsible.
What can happen to your crypto when a custodian fails?
The SEC's 2023 investor alert notes that some crypto platforms have suspended withdrawals and some have gone bankrupt, with customers left unsure how much they can recover. It adds that people who deposit assets with a platform might cease to have legal ownership of them. That is a very different position from a bank account in your own name.
What custody risks should beginners know?
- Rehypothecation: the SEC's term for a custodian using your assets as collateral for lending.
- Commingling: your assets pooled with other customers' instead of held separately.
- No safety net: the SEC says brokerage-style SIPC protection does not extend to crypto platforms, and the FCA says UK compensation cover is highly unlikely.
- Self-custody errors: a lost key or seed phrase means permanent loss of access.
The SEC's advice includes researching any custodian before you use it.
Frequently asked questions
Is crypto held on a platform protected like a bank deposit?
Generally no. The SEC says there are no SIPC-style protections for accounts with crypto entities, and the FCA says UK investors are highly unlikely to be covered by its compensation scheme.
Which type of custody is safer?
Neither removes risk. Self-custody makes you the single point of failure; third-party custody makes the platform one. The right choice depends on which risk you can manage.
Sources
- SEC, Crypto Asset Custody Basics for Retail Investors – Investor Bulletin (Dec 2025) — investor.gov (accessed 2026-10-02)
- SEC, Exercise Caution with Crypto Asset Securities: Investor Alert (Mar 2023) — investor.gov (accessed 2026-10-02)
- FCA, Crypto: The basics — fca.org.uk (accessed 2026-10-02)