Crypto Regulation Takes Center Stage: SEC Commissioner Defends Self-Custody as UK Expands Tax Reporting

SEC Commissioner Champions Self-Custody Rights

SEC Commissioner Hester Peirce, who heads the agency's Crypto Task Force, has issued a strong defense of cryptocurrency self-custody, calling it a fundamental human right that should be protected in freedom-oriented societies.

"Why should I have to be forced to go through someone else to hold my assets? It baffles me that in this country, which is so premised on freedom, that would even be an issue — of course, people can hold their own assets," Peirce stated during an interview with The Rollup podcast ^[1].

Describing herself as a "freedom maximalist," Peirce also advocated for online financial privacy as the default standard, arguing that the presumption should not be that private transactions indicate wrongdoing ^[1]. Her comments come as the Digital Asset Market Structure Clarity Act, which includes provisions for self-custody and anti-money laundering regulations, faces delays until 2026 according to Senator Tim Scott ^[1].

ETFs Challenge Bitcoin's Self-Custody Culture

Despite Peirce's advocacy, market trends suggest a shift away from traditional self-custody practices. Dr. Martin Hiesboeck, head of research at crypto exchange Uphold, noted that "we are witnessing the first decline in self-custodied Bitcoin in 15 years" ^[1].

This trend has been attributed to the SEC's approval of in-kind creations and redemptions for crypto ETFs in July, which allows authorized holders to exchange cryptocurrency for ETF shares without triggering taxable events ^[1]. Many large Bitcoin holders are opting for ETFs to access tax benefits and simplified management.

Hiesboeck characterized this shift as "another nail in the coffin of the original crypto spirit" and a departure from the self-custody mantra of "not your keys, not your coins" ^[1].

UK Expands Crypto Tax Reporting Framework

While the United States debates custody rights, the United Kingdom is implementing comprehensive tax reporting measures for cryptocurrency transactions. UK tax authority HMRC is expanding the scope of the Cryptoasset Reporting Framework (CARF) to include domestic transactions ^[2].

CARF, developed by the Organisation for Economic Co-operation and Development (OECD), facilitates information sharing between tax authorities worldwide. The framework requires crypto asset service providers to perform due diligence, verify user identities, and report detailed transaction information annually, with the first global information exchange scheduled for 2027 ^[2].

According to an HMRC policy paper, the expansion aims to prevent cryptocurrency from becoming an "off-CRS" asset class that escapes the visibility applied to traditional financial accounts under the Common Reporting Standard ^[2]. By including domestic activity, UK tax authorities expect to gain access to more complete data sets for identifying non-compliance and assessing taxpayer obligations ^[2].

DeFi Tax Relief Proposed

In a move that could benefit decentralized finance users, HMRC has also signaled support for a "no gain, no loss" (NGNL) approach to crypto lending and liquidity pool arrangements ^[2].

Under current rules, depositing funds into DeFi protocols can be treated as a disposal, triggering capital gains tax even when users are simply monetizing assets or taking loans against them. The NGNL proposal would defer capital gains tax until a true economic disposal occurs ^[2].

This approach would mean users depositing crypto into lending protocols or contributing assets to automated market makers would only face taxation when they eventually sell or trade assets in ways that realize gains or losses ^[2]. The proposal aims to align tax rules with how DeFi actually functions while reducing administrative burdens ^[2].

These parallel developments in the United States and United Kingdom highlight the ongoing global debate over balancing individual financial freedom with regulatory oversight in the cryptocurrency sector.