Applying the SEC Custody Rule to Cryptocurrency Hedge Fund Managers

Abstract

This paper will review why it is difficult to apply the current custody rule to cryptocurrency hedge funds, and how the rule can be modified to better fit the peculiarities of this new asset class. The paper will look at the present state of the rule and its general application to hedge funds. Second, it examines how cryptocurrency is “held” and the challenges this presents to hedge fund managers and their custodians. Third, it analyzes why the current rule does not meet these challenges. Finally, this paper presents an alternative mechanism that the SEC can adopt for applying the rule.