Explanation
At an exchange your balance sits in their books; they hold the keys. Under MiCA a custodian must segregate client assets and is liable for loss, but there is no guarantee comparable to deposit protection for savings.
Custody by a third party
In custody a licensed firm holds the keys and maintains an internal ledger of who owns what. To you it feels like a bank account: log in, view the balance, sell. Legally it is something else — you hold a claim on the custodian, and how that claim is treated in a bankruptcy depends on how strictly the custodian segregates your coins from its own assets.
What MiCA regulates here
Under MiCA, European custodians must segregate client assets from their own funds, publish a custody policy and be liable for losses caused by failures in their systems. That is a genuine improvement compared with the pre-2025 period, but it is not deposit insurance: no European fund reimburses your crypto up to 100,000 euros as with a savings account.
Self-custody or third-party custody
Custody is defensible for amounts you trade daily, for people uncomfortable with key management, and for companies needing an auditable trail. Self-custody is defensible for anything you intend to hold for years. Most experienced users combine both: a small trading balance at a licensed firm, the rest on their own hardware.
Key takeaways
- Ask about segregation of client assets.
- No deposit guarantee: crypto is not covered.
- Keep the trading balance small, self-custody the rest.
Frequently asked questions
+Is a licensed custodian safe?
Safer than an unlicensed firm, because there are capital requirements, segregation and supervision. But 'safe' here means lower risk, not no risk.
+What is proof of reserves worth?
It shows assets at a point in time, but rarely liabilities. Without an audit of obligations it says little about solvency.