According to the SEC, crypto custody decisions should be evaluated independently of price volatility. A single mistake in wallet management can result in irreversible losses, regardless of market conditions.

Why it matters?
As crypto adoption expands, custody risk has become a core investor protection issue shaping regulatory scrutiny and market trust.

Key ownership does not mean access unless the private key is controlled

The SEC draws a clear distinction between public keys and private keys, highlighting a common source of investor confusion. A public key functions only as an address that allows others to send crypto assets. It does not grant access, control, or withdrawal rights.

This clarification carries behavioral importance. The SEC notes that misunderstanding this difference can fuel scams or false security assumptions. True control over crypto assets exists solely through possession of the private key or recovery phrase, not through public identifiers.

The message is direct: visibility does not equal control, and access rights are never shared accidentally.

Cold wallets reduce online risk but carry permanent loss exposure

Cold wallets are often viewed as the safest storage option. However, the SEC cautions that offline storage introduces a different category of risk. Hardware failure, physical theft, or loss of recovery phrases can permanently eliminate access to crypto assets.

The bulletin stresses that such losses cannot be reversed through technical support or legal intervention. Private keys cannot be regenerated, and assets cannot be recovered without the original seed phrase. From a regulatory perspective, cold wallet users must accept full responsibility for both security and continuity planning.

The SEC advises investors to weigh convenience against the reality that some custody errors have no remedy.

Third-party custody raises consent, data, and behavioral risks

Using exchanges or professional custodians can reduce technical complexity, but the SEC highlights hidden risks that investors often overlook. One critical focus is consent. Some custodians may rehypothecate customer assets or hold them in pooled accounts rather than segregated wallets.

The SEC urges investors to confirm whether explicit approval is required for such practices. In the post-FTX environment, transparency around asset use has become a central regulatory concern.

Data privacy is another key pillar of the guidance. Beyond asset security, the bulletin encourages investors to examine how custodians handle personal information. Identity data, transaction history, and asset holdings may be shared or sold to third parties unless restricted by policy.

To reduce behavioral and operational risk, the SEC highlights the importance of the following practices:

• Awareness of phishing attempts and malicious links

• Mandatory use of multi-factor authentication

• Clear disclosure of data-sharing and privacy policies

According to the SEC, effective crypto security combines technical safeguards with informed, disciplined investor behavior.

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 Altcoin ETF Approval Expectations Are Rising

Firms that already manage Bitcoin and Ethereum ETFs are now focusing on altcoins like Solana, XRP, and Cardano. Currently, the SEC has more than 72 altcoin ETF applications under review. Some of these still lack the necessary documentation. 

Although short-term delays are expected, the first altcoin ETF approvals are anticipated in the last quarter of 2025. However, SEC procedures can take time. Recent postponements include Franklin Templeton’s XRP and DOGE spot ETFs, as well as Ethereum staking ETFs. Five more applications have been delayed for further evaluation. 

Approval Timeline for ETFs Remains Uncertain

Among altcoin ETF applications, Solana and XRP stand out. There are currently 19 applications focused on XRP. However, they are at different stages in the approval process, and no clear timelines have been set. Despite recent delays, XRP continues to trade around $2.24. 

READ: Circle Has Rejected Ripple’s $5 Billion Purchase Offer! 

The likelihood of ETF approval is lower for more niche projects such as Polkadot and Hedera Hashgraph (HBAR). One of the biggest developments could be the inclusion of staking in ETF models. This could apply to assets like Ethereum and Solana. 

According to Polymarket predictions, the likelihood of approval remains low for the summer months. However, by the end of the year, the probability of Solana ETF approval is forecasted at 83%. While slightly below Bloomberg’s 90% projection, this figure is still considered strong. The market remains highly volatile, with current trading volumes reaching approximately $142,000. 

Cardano (ADA), Litecoin (LTC), and XRP also stand out with approval odds climbing up to 87%. While the ETF narrative is no longer as strong as it was during Ethereum’s approval process, investor interest remains. These funds could reignite recovery hopes for altcoins that have been trading at low levels for years. 

The impact of ETFs on crypto prices remains unpredictable. Both BTC and ETH experienced prolonged flat price action following their ETF launches. 

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The CAT is a database that was first proposed in 2010 and launched in April. According to its official website, the CAT tracks orders throughout their lifecycle and identifies the broker-dealer who processes them, allowing regulators to effectively track activity in U.S. markets in Eligible Securities.

SEC Having Issues With Crypto Market

The SEC proposed the 203-page rule that created the CAT in 2010 and passed it in 2012. The database is funded by its participants — the Financial Industry Regulatory Authority (FINRA) and 26 national securities exchanges. The CAT quickly sparked concerns about privacy and government overreach. The NCLA said:

“This class action complaint challenges the SEC’s shocking power grab to impose dystopian surveillance, unprovoked seizures, and actual or potential searches on millions of American investors.”

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The NCLA filed its lawsuit in April. The case attracted more than 50 amicus curiae (friend-of-the-court) briefs. The DeFi Education Fund and the Blockchain Association said in their briefs that the database discloses more information about blockchain investors than it was designed to due to the transparent nature of public blockchains. They explained:

“CAT […] combines personally identifiable information with wallet addresses that reveal blockchain-based user transactions. Therefore, anyone with access to CAT can not only see a person’s securities transactions, […] but also all of that person’s past, present, and future blockchain transactions.”

CAT has also been criticized as a security risk. It acts as a “honeypot” for hackers and is freely accessible by the SEC and its staff. However, the Securities Industry and Financial Markets Association trade group has stated that due to the lack of public access to the database, the SEC would be violating the Administrative Procedure Act if it used the database for rulemaking, since all data used for that purpose must be publicly available.

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