Exchange, Wallet Or Custodian: Where Founders Should Keep Crypto
Who holds the keys decides what happens when something fails. How exchange custody, self-custody and qualified custodians differ, for individuals and companies.
With crypto, the question that matters most is not what you own but who controls the private keys. Whoever holds the keys can move the assets. Everything else, from account dashboards to insurance claims, flows from that fact.
Founders meet this question twice: once for their personal holdings, and again if their company holds digital assets on its balance sheet or receives them as payment. The answer can differ between the two.
Leaving it on an exchange
Holding crypto in an account at an exchange or trading platform is the easiest option. The platform holds the keys and you hold a claim against the platform. It feels like a bank or brokerage account, but the protections are different.
Crypto held on a platform is not a bank deposit, so FDIC insurance does not cover it, and the protections that apply to securities held at a registered broker-dealer generally do not apply either. If the platform fails, what you get back depends on its terms of service, how it held customer assets and how a bankruptcy court treats them. Customers of failed platforms have found themselves treated as unsecured creditors.
If you use a platform, read the custody section of its user agreement. Look for whether customer assets are held separately from the company's own assets, whether the platform can lend or rehypothecate them, and where the company and its custodian are regulated.
Holding your own keys
Self-custody means you hold the keys, typically in a hardware wallet or a software wallet, backed up by a recovery phrase. You remove the platform risk entirely. In its place you take on operational risk: if you lose the recovery phrase, nobody can restore access, and if someone else obtains it, nobody can reverse the theft.
Good self-custody practice is mostly about the recovery phrase. Store it offline, never type it into a website or share it with anyone claiming to be support, and keep a backup in a separate secure location. Before sending a large amount to any address, send a small test transaction and confirm every character of the address, because some scams rely on look-alike addresses planted in your transaction history.
Self-custody also needs an estate plan. If you die or are incapacitated, assets nobody can access are effectively gone. Document where keys and recovery material are held and how a trusted person or executor can reach them, without giving anyone access today.
Custodians, multisig and company policy
For larger holdings, and for most companies, a third option exists: a custodian that specializes in digital assets, often a regulated trust company. The custodian holds the keys under a custody agreement, typically with segregation of client assets, audits and defined withdrawal controls. You trade simplicity for institutional safeguards and fees.
Multisignature wallets sit between self-custody and a custodian. A transaction needs approval from several keys, say two of three, held by different people or services. That removes the single point of failure and suits company treasuries where no one person should be able to move funds alone.
If your company holds digital assets, treat custody like any other treasury control. Decide in writing who can initiate transactions, who must approve, what limits apply and how keys are stored and rotated when people leave. Your auditors and your board will want to see it, and your insurer may ask about it when you buy crime or cyber coverage.
Keep company and personal holdings strictly separate. Mixing them complicates bookkeeping and tax reporting and can raise questions about whether the company's assets were properly protected.
The tax basics that follow you everywhere
Custody choices and tax records are connected. Every move between platforms and wallets leaves a trail you will need to reconstruct at tax time, and the more places you hold assets, the harder that becomes.
For federal tax purposes, digital assets are treated as property. Selling, exchanging or spending them generally triggers a gain or loss measured against your basis. Moving assets between wallets you own is not a sale, but you still need records of the original basis and dates, and brokers are now reporting some digital asset transactions to the IRS on a dedicated form.
What to do now
List every place you or your company hold digital assets and who controls the keys in each case. For platforms, read the custody terms. For self-custody, confirm your recovery phrase is stored safely and that someone could find it in an emergency. For the company, write the policy before the balance gets large, not after, and test the withdrawal process with a small amount so you know it works when it matters.
This is general information, not financial advice. Nothing here is a recommendation to buy or sell anything; speak to a licensed adviser about your own position.
