SEC Crypto Warning: $6bn Custody Market Puts Retail Investors at Risk
The SEC shifts focus to investor education, warning retail crypto holders about custody risks as the $6bn crypto custody market rapidly...
Quick overview
- The SEC is shifting its focus from enforcement to education for crypto investors, emphasizing the importance of understanding crypto custody.
- A new Investor Bulletin outlines the risks associated with third-party custody, including potential loss of access due to hacks or bankruptcy.
- The growing crypto custody industry, projected to reach $6.03 billion by 2030, highlights the need for investors to ask critical questions about asset management.
- The bulletin also addresses self-custody, warning that while it offers control, it also carries significant risks, including permanent loss of funds.
The US Securities and Exchange Commission is changing how it talks to crypto investors. Instead of focusing only on enforcement, the regulator is now putting more weight on education, especially as millions of retail investors hold digital assets outside traditional financial systems.
On December 12, the SEC’s Office of Investor Education and Advocacy released a new Investor Bulletin that breaks down how crypto custody works and where the risks often hide.
SEC Highlights Crypto Custody Risks
At the center of the bulletin is a simple message: how crypto is stored matters just as much as what crypto you own. The SEC explains that many retail investors rely on third-party platforms to safeguard their digital assets, often without fully understanding how those platforms operate behind the scenes.
Curious about crypto wallets and how to store and access crypto assets? Check out our Crypto Asset Custody Basics Investor Bulletin.https://t.co/x4HMYMHLAe pic.twitter.com/bSbP25nzOc
— U.S. Securities and Exchange Commission (@SECGov) December 13, 2025
The guidance warns that investors could lose access to their crypto if a custodian is hacked, shuts down operations, or files for bankruptcy.
The SEC also notes that some platforms may lend out customer assets, a practice known as rehypothecation, or pool customer funds rather than keeping them clearly segregated. During past market disruptions, these structures have amplified losses and delayed recoveries.
A $6bn Industry With Growing Stakes
The timing of the bulletin reflects the rapid expansion of the crypto custody business. Industry estimates suggest the sector is growing at roughly 13% per year and could reach $6.03bn by 2030. That growth underscores how much value is now being held outside banks and brokerages, often under very different legal and operational standards.
Against that backdrop, the SEC is urging investors to ask basic but critical questions before trusting a platform:
- Are customer assets segregated or pooled?
- Does the custodian lend or rehypothecate holdings?
- What happens to client assets if the firm fails?
The agency stresses that custody arrangements can shape outcomes during crises, even if crypto prices themselves remain stable.
Self-Custody Brings Control and Risk
The bulletin also addresses self-custody, a popular option among investors who want direct control over their assets. While the SEC acknowledges the appeal of holding crypto in a personal wallet, it warns that this approach transfers all responsibility to the individual.
Losing private keys, the agency notes, usually means permanent loss of funds, with no recovery mechanism. Hacks, damaged devices, or simple mistakes can all result in assets becoming inaccessible.
A Shift Toward Education
Overall, the bulletin reflects a noticeable shift in tone. With retail crypto ownership already widespread, the SEC appears less focused on debating whether digital assets belong in portfolios and more focused on helping investors understand operational risks. The message is clear: informed decisions about custody may matter more than short-term price movements.
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