Crypto 101: Your Crypto Is Somewhere. Do You Know Where and Who Is Holding It?
This is Part Three of a four-part series. Part One covered Bitcoin, blockchain, and where your money goes when you buy crypto. Part Two covered what people are building on top of it -- Layer 2, DeFi,
The man who did everything right
Sunil Kavuri had a background in traditional finance. He understood risk. When he moved his crypto to FTX he was saving for a house and his son’s university education.
On November 8, 2022, FTX suspended withdrawals. “I felt sick. I just thought, oh my God, that’s it. I’ve lost everything.”
He was eventually repaid… in dollars. But Bitcoin had tripled in value by then. Kavuri later estimated creditors recovered as little as 9% to 46% of the crypto value they originally lost.
Technically made whole. Practically devastated.
His story is not about greed or recklessness. It is about a layer he didn’t know existed. Once you buy crypto, who is actually holding it -- and under what rules?
It starts with a wallet
When you buy crypto it doesn’t sit in an app the way a photo sits on your phone. It lives on the blockchain because it is a permanent public record of who owns what. But to access it, move it, or prove it belongs to you, you need something called a wallet.
A wallet doesn’t hold crypto the way a physical wallet holds cash. It holds the private keys which are the cryptographic proof that the crypto on the blockchain belongs to you. The crypto stays on the blockchain. The keys stay in your wallet. Lose the keys and you lose access to the crypto. Permanently. No recovery. No customer service. No insurance.
There are two kinds of wallets and the difference matters enormously.
A hot wallet is connected to the internet. Your phone app, your browser extension, the interface on your exchange. Convenient and accessible. But connected means exposed. A hot wallet can be hacked, phished, or compromised.
A cold wallet is a physical hardware device. It is a small USB-like object that stores your keys completely offline. To use it you plug it in. The rest of the time it sits disconnected from any network. Significantly safer. Significantly less convenient. The gold standard for serious holders.
Here is the critical point. If you hold your own wallet hot or cold, you are your own custodian. You hold the keys. Nobody else. No exchange, no institution, no company. Your crypto is as safe as your ability to protect those keys and as accessible as your ability to find them.
This is what the crypto community calls “self custody”. It is the original vision. No intermediaries. Pure ownership. But pure responsibility too. Lose your keys and there is nobody to call.
Most retail investors never get here.
What most people actually do: leave it on an exchange
When you buy crypto on Coinbase, Kraken, or Binance the default is to leave it there. The interface looks like a bank account. The balance is visible. It feels safe. Moving it to a separate wallet feels complicated and unnecessary.
Here is what most people don’t realise when they do that.
When your crypto sits on an exchange you don’t hold the keys. The exchange does. Which means legally you don’t own crypto. You own a claim against the exchange for crypto. If the exchange fails that claim joins a queue in a bankruptcy court. You are an unsecured creditor. You are not first in that queue.
This is exactly what happened to Sunil Kavuri. His crypto was on FTX. FTX held the keys. FTX was simultaneously his exchange and his custodian. When FTX collapsed his claim joined millions of others in a proceeding that took years to resolve.
In traditional finance the institution that trades your assets and the institution that holds them are separate regulated entities with different legal obligations. Your stockbroker executes trades. Your custodian holds the assets. The custodian is legally required to keep your assets segregated from the firm’s own money. If your broker goes bankrupt your assets are protected because a separate institution is holding them under strict regulatory oversight.
FTX was doing both. Acting as an exchange as well as a custodian, with no regulatory requirement to segregate. It used customer assets for its own trading through its sister company Alameda Research. Sam Bankman-Fried was sentenced to 25 years in prison for stealing $8 billion from FTX customers. The regulatory framework that would have prevented it simply did not exist for crypto exchanges at the time.
The third option: regulated custodians
A regulated custodian is a licensed institution whose entire function is holding assets safely on behalf of others. They hold your keys. But under a completely different legal and regulatory framework from an exchange.
They cannot lend your assets out. They cannot commingle them with company funds. They are audited. They are insured. They are licensed and supervised by financial regulators. If they fail your assets are legally segregated and protected.
Regulated crypto custodians exist and are growing. Coinbase Custody, BitGo, Anchorage Digital. They serve primarily institutional investors like hedge funds, asset managers, corporate treasuries. The retail investor leaving crypto on a standard exchange is almost never using one.
But here is where it gets interesting. Regulated custodians are not just holding Bitcoin and Ether for institutional investors. They are increasingly the invisible infrastructure underneath the entire crypto ecosystem.
When Circle issues USDC which is one of the world’s largest stablecoins, the dollar reserves backing those coins have to sit somewhere safe and verifiable. That somewhere is BNY Mellon, one of the oldest custodian banks in the world. When Anchorage Digital which is the first federally chartered crypto bank in the US issues its own payment stablecoin, US Bank holds the reserves in custody.
The most traditional financial institutions in the world are now the custodians underneath the most innovative crypto assets. That is not a coincidence. It is the result of regulators and institutions recognising that the custody question is the same whether the asset is a Treasury bill or a stablecoin. Who holds it, under what rules, and what happens when something goes wrong.
For those who don’t want to hold crypto at all: DATs and ETFs
Not everyone who wants exposure to crypto wants to manage wallets, keys, and custody arrangements. Some people want the potential upside of Bitcoin price movements without ever touching the underlying asset. For them two products have emerged that sit firmly inside the traditional financial system.
Digital Asset Treasuries or in short DATs are publicly listed companies whose primary business is accumulating crypto on their balance sheets. Strategy, formerly MicroStrategy, is the most prominent example. As of May 31, 2026 it holds 843,706 Bitcoin at an average purchase price of $75,699 -- nearly 4% of Bitcoin’s entire fixed supply. When you buy Strategy shares through a regular brokerage account you gain exposure to Bitcoin price movements without ever opening a wallet or worrying about custody.
The tradeoff is that you are two layers removed from the asset. You own shares in a company that owns Bitcoin. If Bitcoin drops sharply the company’s balance sheet takes the hit and your shares follow. In the fourth quarter of 2025 alone Strategy reported a $17.44 billion unrealized loss as Bitcoin prices fell. You are inside the traditional financial system meaning you have all its protections but the thing driving your returns is anything but traditional.
Bitcoin ETFs go one step further in wrapping crypto inside a familiar traditional finance product. When the US Securities and Exchange Commission approved spot Bitcoin ETFs in January 2024 it opened the door for ordinary investors to buy Bitcoin exposure through their existing brokerage accounts. It is the same way they buy shares in Apple or a fund tracking the S&P 500. BlackRock’s iShares Bitcoin Trust -- IBIT -- became the fastest ETF in history to reach $70 billion in assets, doing so in just 341 days. Remarkably 75% of its investors were entirely new to BlackRock’s ETF platform. These were not existing crypto holders moving into a regulated product. They were traditional investors coming to Bitcoin for the first time through a familiar wrapper.
DATs and ETFs are the point where the custody story starts to blur into a bigger story. The question of who holds your crypto is becoming the question of where crypto ends and traditional finance begins.
That boundary is dissolving faster than most people realise.
That is Part Four.
The regulator enters
Every gap this piece has described now has a regulatory response in progress.
The GENIUS Act in the United States -- which passed in 2025 -- requires stablecoin issuers to hold dollar-for-dollar reserves in high quality liquid assets and submit to regular audits. A direct attempt to ensure that backed means something specific and verifiable.
MiCA in Europe -- which came into full effect in December 2024 and is already under formal review -- requires crypto asset service providers to segregate customer assets, maintain capital reserves, and obtain licenses to operate. A direct attempt to ensure that exchanges performing custodial functions are held to custodial standards.
The Financial Stability Board is pushing for consistent global frameworks so that the rules in one jurisdiction don’t simply push activity to another with weaker oversight.
These frameworks are imperfect. The gaps are real. The global regulatory patchwork remains deeply inconsistent. But something has shifted irreversibly. Traditional finance and crypto are no longer competing from opposite sides of a wall. They are being stitched together -- through custody infrastructure, through regulated institutions, through legislative frameworks that treat a stablecoin reserve and a Treasury bill as the same underlying question.
The conversation is no longer whether to regulate. It is how, how fast, and whether the rules can keep pace with what is being built.
You don’t need to own a single coin to have a stake in how that question gets answered.
Sources
BBC, "FTX: I lost £1.7m -- and I'm one of the lucky ones", September 26, 2023 -- www.bbc.com/news/technology-66892685
CNBC, FTX Customers Who Lost a Fortune Are Doubling Down on Crypto, October 2023
CoinDesk, Bitcoin ETFs Are Now BlackRock’s Top Revenue Source, November 2025
US Bancorp Press Release, US Bank Selected as Custodian for Anchorage Digital Stablecoin Reserves, October 2025
Financial Stability Board, Crypto-assets and Global Stablecoins, 2025
IMF-FSB, G20 Crypto-asset Policy Implementation Roadmap, October 2024