Block data
- The SEC suggests researching any third-party custodian, including searching for complaints and finding out how it is regulated.
- Some custodians use deposited crypto as collateral for their own purposes, a practice the SEC calls rehypothecation.
- FinCEN guidance says exchangers and administrators of convertible virtual currency generally qualify as money transmitters under the Bank Secrecy Act.
Picking a crypto platform is less like choosing a shopping app and more like choosing a bank and a broker at once. When you leave crypto on a platform, the platform holds the keys. The SEC calls this third-party custody, and its investor bulletin on the subject is the best checklist available. This guide follows it closely and does not recommend any specific platform.
Why the choice matters
The SEC notes that crypto platforms may combine exchange, broker-dealer and custodial functions that are normally split between separately registered firms, and that this commingling creates conflicts of interest and risks for investors. It also warns that investors who deposit assets with a platform might cease to have legal ownership of them and might not get them back if the platform fails. Some platforms have suspended withdrawals or entered bankruptcy. That is why the questions below come before any question about prices or features.
Seven questions to ask
1. Is it registered, and with whom?
FinCEN guidance says businesses that exchange or administer convertible virtual currency generally qualify as money transmitters under the Bank Secrecy Act, and FinCEN lists registration among the requirements that may apply to money services businesses; it also runs a public MSB registrant search. If a platform offers futures or options on crypto, the CFTC says to verify it is registered with the CFTC. Registration is not a guarantee of safety, but its absence is a warning sign. More in How Crypto Exchanges Are Regulated in the US.
2. What is its track record?
The SEC suggests researching any custodian carefully, including an internet search for complaints. The FTC suggests searching the company’s name with words like review, scam or complaint. The CFTC adds a simple check for unfamiliar sites: see how long the website’s domain has been registered.
3. How does it store customer assets?
Ask whether the platform keeps crypto in its own facilities or subcontracts storage, whether it uses hot wallets, cold wallets or a combination, and who has access to the private keys, the SEC bulletin suggests.
4. Does it lend or pool your crypto?
Some custodians use deposited crypto as collateral for their own purposes, such as lending, which the SEC calls rehypothecation. Some also commingle customer assets rather than holding them individually. The SEC suggests finding out whether your platform does either and whether it requires your consent.
5. What happens if it fails?
Ask whether the platform carries insurance for loss or theft and read its terms, the SEC advises. Be careful with reassurances: the SEC warns that a proof of reserves is not as rigorous as a financial statement audit, may show only a snapshot, and does not show the full picture of liabilities. Neither FDIC deposit insurance nor SIPC protection covers crypto platform accounts, according to the FTC and SEC.
6. What does it charge?
The SEC lists the fees to ask about: annual asset-based fees, transaction fees, asset transfer fees for moving crypto out, and fees to open and close an account. Details in Crypto Exchange Fees Explained: Every Cost Between Buying and Selling.
7. How does it protect your data and account?
Ask what privacy protections the platform offers, whether it sells customer data and whether it needs your consent, the SEC suggests. On your side, use strong passwords and multi-factor authentication for every crypto account.
The SEC also suggests checking which crypto assets a custodian lets you hold, since the range varies between providers.
Quick checklist
| Check | Where the advice comes from |
|---|---|
| Registration status confirmed (FinCEN MSB search, CFTC if derivatives) | FinCEN, CFTC |
| Complaints and reviews searched | SEC, FTC |
| Storage and key access explained | SEC custody bulletin |
| Lending and commingling disclosed | SEC custody bulletin |
| Insurance terms read | SEC custody bulletin |
| Full fee list obtained | SEC custody bulletin |
| Multi-factor authentication turned on | SEC custody bulletin |
Red flags
- Promises of guaranteed or risk-free returns. The CFTC says there is no such thing as a guaranteed investment or trading strategy.
- A platform recommended by someone you met online who wants you to use it. The CFTC lists this as a warning sign of romance fraud.
- A site that only accepts cryptocurrency deposits, another CFTC warning sign.
- Withdrawals that require new fees or taxes paid upfront, a pattern the FTC and CFTC both describe in scams.
Tip: Start small. Deposit a small amount, make a trade and withdraw it back to your bank before trusting a platform with more. A withdrawal that works is the test that matters.
Once you have chosen a platform, decide whether to leave assets there or hold them yourself; Hot vs Cold Crypto Wallets, and Who Holds Your Keys covers the trade-offs.