Bitcoin and Ethereum closer to Wall Street: SEC allows advisors to treat them like cash

The SEC has approved allowing financial advisors to treat Bitcoin and Ethereum as cash, a key step toward the integration of cryptocurrencies into Wall Street.

The U.S. Securities and Exchange Commission (SEC) has issued a no-action letter that opens new avenues for registered investment advisers and regulated funds to use state-owned trust companies as custodians of digital assets, including Bitcoin and Ethereum.

According to experts, this decision marks a step forward in the incorporation of cryptocurrencies into the traditional Wall Street regulatory framework, allowing them to be managed and safeguarded similarly to cash or cash equivalents.

The SEC's new regulation and its impact on crypto-asset custody

Since their inception, Bitcoin and Ethereum have been considered assets with unclear legal rules in many respects, primarily related to custody and financial regulation. The letter issued by the SEC responds to a formal request to the authority from the law firm Simpson Thacher & Bartlett LLP, which raised the need to clarify whether state trust companies could be treated as banks under current legislation for the purposes of holding cryptocurrencies in regulated funds and investments.

The SEC responded affirmatively, establishing that authorized and supervised state fiduciaries may assume the role of qualified custodians of cryptocurrenciesIn legal terms, these companies can be considered "banks" under the applicable definitions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940, thus expanding the range of financial institutions authorized to hold digital assets within clear and secure regulations.

This recognition means that investment advisors and regulated funds working with these fiduciaries can place and hold cryptocurrencies such as Bitcoin and Ethereum accompanied by cash or reasonable cash equivalents for trading. In practice, this measure facilitates the inclusion of crypto assets in institutional portfolios, allowing them to be treated with the same formality and with similar guarantees as those that exist for liquid money in custody.

Overall, this shift occurs within an evolving regulatory environment in the United States, where states like Wyoming have led the way in favorable state regulation for trust companies specializing in digital assets. This rigorous state oversight is now recognized by the federal regulator, which validates that these trust companies comply with advanced controls and robust standards to protect assets, ranging from financial audits to complex digital security and cold storage systems.

The SEC opens Wall Street's doors to cryptocurrencies

The SEC's approval brings crypto assets closer to Wall Street in terms of both form and substance, as it opens the door for regulated funds and advisors to invest in Bitcoin and Ethereum under clear rules, minimizing ambiguities about how to safeguard these assets and comply with current legislation. 

For experts, the letter The SEC's ruling represents a boost for the development of institutional financial products that integrate cryptocurrencies, such as mutual funds, exchange-traded funds (ETFs), or other vehicles that require reliable and regulated custody.

Bloomberg Intelligence analyst James Seyffart noted that this decision responds to frequent industry demands for a more defined framework for the inclusion of digital assets in professional investment options. The combination of recognition of the strict state oversight framework with SEC authorization enables an ecosystem in which cryptocurrencies can be managed under standards similar to those of other traditional financial assets.

This decision also represents a new chapter in the relationship between federal regulatory authorities and the cryptocurrency sector, illustrating an approach based on collaboration and adaptation of the regulatory framework to incorporate financial innovations. The concept that Cryptocurrencies can be treated with criteria similar to those of cash indicates greater confidence in its legitimacy within the official financial system.

In short, registered advisors and regulated funds now have the ability to select qualified fiduciaries that will allow them to integrate cryptocurrencies into their portfolios, which in turn can incentivize a significant flow of institutional capital into these digital assets. 

The path to integrating Bitcoin and Ethereum into the financial system is expanding.

The SEC's letter contains key specifications for this authorization to function properly. Advisors and funds must conduct assessments of fiduciaries, including reviewing independent audits and internal control reports, ensuring that procedures are consistent and effective in protecting assets. Furthermore, it is mandatory to formalize clear agreements that stipulate the fiduciary's responsibilities, especially regarding the prohibition on lending or rehypothecating assets without consent.

This regulatory framework provides a solid foundation for the gradual integration of digital assets into the traditional financial system, reducing the uncertainty that hindered institutional adoption of cryptocurrencies. 

The SEC, through this letter, establishes parameters that, although they do not modify the law, clarify their application in an area that until now presented legal grey areas.

In short, this authorization represents a regulatory advance that favors the maturity of the crypto ecosystem by combining technological innovation with traditional financial oversight. This will allow institutional investors to operate with Bitcoin and Ethereum in a regulated and transparent environment, promoting the evolution of cryptocurrencies toward an increasingly relevant role within the official financial structure.

For many, this SEC move reflects significant recognition of the stability and ability of state trust companies to manage digital assets with high standards, which in turn fuels new opportunities for professional cryptocurrency investment and paves the way for broader adoption within the U.S. financial system.