The US SEC is considering relaxing standards for institutional crypto asset custody; disclosure requirements may be simplified, and regulatory attitude is showing a mild shift.

I. Introduction: Subtle Shifts in Crypto Regulatory Landscape

In late October 2025, leaked internal discussion documents from the U.S. Securities and Exchange Commission (SEC) revealed that regulators were assessing adjustments to the disclosure and custody rules for institutional investors holding crypto assets.
This move is seen by the industry as a signal that the United States is shifting from high-pressure to structural relaxation in its digital asset policy .

Over the past three years, the SEC has taken a tough regulatory stance on the crypto industry, launching numerous enforcement actions against exchanges, stablecoin issuers, and custodians. However, as the market matures, institutional demand expands, and the legal environment becomes clearer, regulators are beginning to reassess "how to safely allow compliant capital into the crypto market."

In an internal memo, SEC Chairman Gary Gensler stated, "The goal of regulation should not be to stifle innovation, but to ensure that transparency, accountability, and investor protection go hand in hand."

II. Policy Background: Regulatory Dilemmas and Market Pressures Coexist

Since the FTX crash in 2022, U.S. regulators have tightened requirements for the custody and disclosure of crypto assets.
In particular, the SEC's "Custody Rule Proposal" requires:

• All investment advisors must entrust their clients' crypto assets to a "qualified custodian" for safekeeping;

• The custodian institution must possess a banking or trust license;

• Investors' holdings of cryptocurrency and their wallet addresses must be disclosed periodically.

However, this proposal has sparked huge controversy within the industry.
Many institutions believe that its implementation costs are too high, its disclosure scope is excessive, and it is incompatible with the technical characteristics , causing traditional financial institutions to hesitate to enter the field of encrypted custody.

Now that large compliant custodians (such as Coinbase Custody, Anchorage Digital, and BitGo Trust) have gradually established standardized operating models, the SEC has begun to discuss whether it can appropriately relax the requirements and replace "institutional nature" with "risk management capabilities" as the main assessment criterion .

III. Core Reform Directions: Three Key Adjustments

According to the draft for discussion, the SEC intends to make structural adjustments in three areas:

1. More flexible custodian qualifications
   The original regulations only allowed banks or trust companies to act as "qualified custodians"; the new scheme may allow technology-based custodian institutions certified through risk assessment and insurance mechanisms to participate.
   This means that some non-bank institutions can also obtain custody licenses if they can prove that they have cold wallets, multi-signature, and insurance protection systems.

2. Disclosure cycle extended
   Currently, institutions are required to disclose their crypto asset holdings quarterly. The new proposal suggests extending the cycle to six months and allowing for interval reporting instead of real-time data during periods of high volatility.
   This change will significantly reduce the pressure on compliance departments while preventing the market from over-interpreting changes in institutional holdings.

3. Tiered regulation by asset type
   The SEC proposes to classify crypto assets into three categories:

• Highly liquid assets (such as BTC and ETH);

• Stablecoin assets (USDC, USDT);

• Ilvable tokens (DeFi tokens, NFT fund shares, etc.).
  Different categories are subject to different disclosure and valuation standards.

Regulatory advisors say this is the first attempt by the United States to “establish a tiered regulatory system” for digital assets, which is expected to form the basis of the future legal framework.

IV. Industry Response: Cautious Optimism and Regulatory Expectations

Following the news, mainstream institutional investors in the United States generally welcomed it.
BlackRock's digital assets division believes that relaxed custody rules will help fund institutions hold Bitcoin and Ethereum at a lower cost, increasing the flexibility of asset allocation.

Fidelity analysts point out that reduced disclosure frequency and categorized regulation will make institutions more willing to allocate crypto assets for the long term , avoiding unnecessary compliance risks caused by short-term volatility.

Meanwhile, several blockchain hosting companies have also responded positively.
Anchorage Digital's co-founder stated that the SEC's shift in attitude is "a sign of regulatory maturity," indicating that regulators have recognized that "prohibition does not prevent risks; transparency and trust are the long-term solutions."

However, some experts hold reservations.
They believe that the SEC's "relaxation signals" may trigger excessive market optimism in the short term, while real rule changes will still require a lengthy legislative process.

V. Judicial Impact: Court Judgments Drive Policy Adjustments

In recent years, numerous U.S. legal cases involving the classification and custody of crypto assets have had a profound impact on the SEC's regulatory approach.
Especially after the conclusion of the "Ripple second trial" and the "Grayscale Bitcoin ETF lawsuit" in the first half of 2025, courts generally tend to limit the SEC's excessive expansion of regulatory authority .

In its judgment, the judge pointed out that crypto assets cannot be directly defined using the traditional securities framework and should take into account technology, liquidity, and market use .
This judicial stance provides legal support for SEC reform and also prompts internal policies to shift from "strong regulation" to "precise regulation".

Industry observers believe that this round of policy discussions is actually a natural response to the judicial ruling.
By adjusting disclosure and custody rules, the SEC can maintain its regulatory authority while also responding to market demands.

VI. Regulatory Logic: From Defensive Enforcement to Framework-Based Governance

From a macro perspective, the SEC's new moves reflect a major shift in the logic of US regulation.
Over the past three years, US regulation has exhibited characteristics of "defensive enforcement":

• Prioritize the investigation and prosecution of illegal issuance and fraudulent projects;

• A concentrated crackdown on unregistered exchanges and token sales;

• The agency adopts almost stringent review standards for its trusteeship.

However, since 2025, with the deepening interaction between legislation and the judiciary, regulators have begun to seek a more sustainable governance path.
“Framework governance” means:

• Policies should support long-term market development;

• Regulation needs to keep pace with technological evolution;

• The focus has shifted from "prohibition" to "supervision and guidance".

This shift in logic is seen as a sign of the "maturation" of US crypto policy.

VII. Institutional Custody Ecosystem: Market Size and Trends

According to the latest industry statistics, as of September 2025, the total size of institutional digital asset custody in the United States was approximately $410 billion , an increase of about 250% compared to 2023.
in:

• Approximately 62% are handled by professional crypto hosting companies;

• 26% are managed by banks or trust institutions;

• 12% is held by the fund itself.

If the SEC officially relaxes the eligibility requirements, the custody market is expected to exceed one trillion US dollars in the next three years, driving the simultaneous expansion of the insurance, audit, and compliance technology industry chain.

Meanwhile, the technical standards for institutional custody are also being upgraded:
Multi-signature, hardware isolation, and geographically distributed backup have become common industry requirements;
AI-powered risk control and real-time auditing systems are gradually replacing traditional manual oversight processes.

VIII. International Comparison: The US's "Regulatory Deregulation" and Europe's "Regulatory Harmony"

In contrast to the gradual relaxation in the United States, Europe and Asia are moving towards "standardized, centralized regulation".
The European Central Bank is developing a unified standard for digital asset custody (DACF).
The Singapore MAS has required all custodians to provide third-party security audits.
The Hong Kong Monetary Authority has established a filing system for digital asset trusts.

This difference reflects the different regulatory cultures:

• Europe pursued unification and coercion;

• Asia emphasizes pilot programs and regulatory sandboxes;

• The United States prefers market self-regulation and judicial constraints.

Analysts believe that this move by the United States may prompt Europe to reassess its regulatory flexibility in order to prevent capital outflows to regions with more lenient regulations.

IX. Potential Risks: The Challenges Behind Relaxation

Although the policy shift has been welcomed by the market, the risks should not be ignored.

1. Regulatory arbitrage : If relaxed standards are not strictly enforced, institutions may exploit gray areas to circumvent regulations.

2. Insufficient investor protection
   Decreased disclosure frequency may lead to reduced transparency, making it difficult for small investors to assess risks.

3. Market volatility amplifies . Once institutional holdings change significantly, information lag can amplify market reactions.

4. Political Risks : Policy adjustments still need to go through parliamentary procedures, and partisan politics may affect the final version.

SEC insiders said any relaxation measures would come with “higher liability requirements,” including insurance coverage, contingency reserves, and ongoing audit obligations.

X. Conclusion: A Key Shift from Regulatory Constraints to Institutional Guidance

The U.S. Securities and Exchange Commission (SEC) is redefining the boundaries of crypto asset regulation.
It has gradually evolved from a simple law enforcement agency into a rule-maker for the digital financial system.
Relaxing custody standards and simplifying disclosure requirements not only signifies a softening of regulatory stance, but also marks the beginning of acceptance of the long-term existence of crypto assets within the US financial system.

The real significance of this policy shift lies in the fact that regulation is no longer a wall that "blocks innovation," but a bridge that "guides capital."
The progress of SEC reforms in the coming years will determine whether the United States can regain its dominant position in the global competition for digital finance.

As a former SEC commissioner put it at the Washington conference:

"The future of regulation is not about banning anyone from entering the market, but about determining who can remain in a safe, transparent, and responsible manner."