The U.S. Securities and Exchange Commission (SEC) has officially repealed several key crypto custody and exchange-related rules originally proposed during the Biden administration, signaling a significant shift in the regulatory landscape.
Effective May 2025, the SEC withdrew its 2019 joint statement on broker-dealer custody of crypto assets along with 14 other proposed rules, including the influential Rule 3b-16 that sought to broaden the definition of "exchange" to encompass decentralized finance (DeFi) protocols. This nullification removes stringent custody requirements that would have mandated investment advisers to hold all crypto client assets with "qualified custodians," such as regulated banks or broker-dealers, which many crypto exchanges and wallet providers could not fulfill.
The new SEC guidance from its Division of Trading and Markets encourages broker-dealers to engage with crypto custody, potentially unlocking increased institutional participation particularly in crypto securities like Ethereum (ETH) and Solana (SOL). Industry participants expect this deregulatory approach to facilitate broader brokerage entry into crypto custody services, marking a move towards a more accessible market.
However, regulatory ambiguity persists, notably concerning the classification of crypto assets as securities, leaving uncertainty around coherent long-term regulatory frameworks. Commissioner Caroline Crenshaw highlighted the contradictions in current regulatory efforts and the challenges in providing clear guidance.
Historically, such regulatory reversals have prompted significant market reactions and may influence shifts in institutional investment and market dynamics. Market observers remain cautiously optimistic yet anticipate further clarifications as the SEC's stance on crypto assets continues to evolve.