Author: Margaret Rosenfeld, Chief Legal Officer of Everstake

The Federal Housing Finance Agency (FHFA) recently issued a directive exploring how to incorporate cryptocurrency into single-family residential mortgage risk assessments, a popular and overdue step.

If implemented, this could allow long-term cryptocurrency holders to use their digital assets when applying for a mortgage without being forced to liquidate.

To realize its potential, the resulting proposals must reflect the actual operation of cryptocurrencies. This means acknowledging the legitimacy of self-custodied digital assets.

Some have misinterpreted the directive, believing that cryptocurrencies must be held on U.S. regulated exchanges to be counted. This would be a serious mistake—and contrary to the explicit text of the directive.

"Digital assets… must be able to be evidenced and stored on centralized exchanges regulated in the U.S. and subject to all applicable laws."

The wording "able to be stored" is clear. The directive requires assets to be verified and securely handled through U.S. regulated infrastructure, rather than prohibiting assets held elsewhere. Verifiability must be the standard, not a specific custody model.

Self-custody is not a fringe activity in cryptocurrency. It is foundational to the system's architecture and security. Well-managed self-custody can provide superior transparency, auditability, and protection compared to centralized exchanges. The collapse of major custodians and centralized exchanges illustrates how real counterparty risk can be.

With proper record-keeping, self-custodied assets can be fully auditable, as on-chain records prove balances and ownership. They also offer higher levels of security, as cold storage and non-custodial wallets reduce single points of failure. Furthermore, self-custodied assets are verifiable, with third-party tools already available to prove wallet holdings and transaction history.

If policymakers exclude these assets from mortgage underwriting simply because they are not exchange-custodied, they risk incentivizing less secure practices and punishing users for correctly utilizing cryptocurrency.

There is a better path. Any sound cryptocurrency mortgage framework should allow for both self-custody and custodial holdings, provided they meet verifiability and liquidity standards. It should also apply appropriate valuation discounts (impairments) to account for volatility. Another key requirement is to use a standard risk-based tiered approach to limit the share of cryptocurrency in total reserves. Finally, regardless of the type of custody, it should mandate clear documentation of verification and pricing methods.

This thinking has already been applied to volatile assets like stocks, foreign currencies, and even private equity. The treatment of cryptocurrency should be no different.

The directive has the potential to modernize housing finance for the digital age. However, it must avoid the trap of forcing cryptocurrency to mimic traditional models merely for the sake of understanding. We do not need to flatten decentralization to fit old risk frameworks. We just need smart methods to verify it. Let’s get this right, not only for cryptocurrency holders but also for the integrity of the mortgage system itself.

This is just one example of the larger challenges facing new cryptocurrency policies. From tax reporting to securities classification, too many rules are drafted under the assumption that all users rely on centralized intermediaries. Millions of participants choose self-custody or decentralized platforms because they value transparency, autonomy, the absence of traditional intermediaries, and security. Others prefer the regulated custodians provided by centralized entities.

Both models are legitimate, and any effective regulatory framework must recognize that users will continue to demand different options.

More technical education about decentralized technology is crucial to bridging this gap. Policymakers and regulators need a deeper understanding of how decentralization works, why self-custody is important, and what tools exist to verify ownership without relying on third parties. Without this foundation, future directives, statements, regulations, and legislation risk repeating the same mistakes of overlooking much of the ecosystem and failing to consider the full range of cryptocurrency industry participants.

Author: Margaret Rosenfeld, Chief Legal Officer of Everstake.

Related: U.S. Housing Mortgage Regulator Considers Bitcoin (BTC) Amid Housing Crisis

This article is for general informational purposes only and is not intended as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Original: “Cryptocurrency Rules for Mortgages Must Reflect Self-Custody Realities”

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