A clear relationship in finance: if you hold bitcoin in custody, it is held 1:1 for you.
That principle is widely understood. The confusion starts when different institutions use the same words to describe different realities.
Below is a concise view of what "full reserve" means in custody, what it rules out, why it matters, and what to look for.
Full reserve is a boundary around client assets
In custody, "full reserve" is a boundary, not a sentiment.
A full-reserve custodian holds client bitcoin for custody purposes only. It does not treat client bitcoin as a balance-sheet input.
Put plainly:
- client bitcoin is not used to fund the institution,
- not used to generate yield,
- and not used to secure the institution's obligations.
This matters because the moment a custodian uses client assets, the client takes on risks that are not part of custody: credit risk (will counterparties repay?) and liquidity risk (can the institution meet withdrawals when it says it can?).
Those risks may be acceptable in a lending or investment product. They are not equivalent to custody.
What full-reserve custody excludes
To make the boundary concrete, full-reserve custody excludes these practices with client bitcoin:
- Lending: transferring bitcoin to borrowers in exchange for yield
- Pledging: using bitcoin to secure the institution's own financing or obligations
- Rehypothecation: re-using bitcoin posted as collateral to back other positions
- Balance-sheet deployment: any structure where client bitcoin is "put to work" rather than held
These are legitimate activities for institutions that disclose them and are built to manage their risks.
They are simply not custody.
Full-reserve custody keeps the relationship legible: the custodian's job is safekeeping and access, not asset deployment.
Why this matters specifically for bitcoin holders
Bitcoin is unusual in one important way: clients have a real alternative, self-custody.
That changes the standard a custodian should meet.
A custodian should add value by providing:
- operational continuity,
- reliable processes,
- and disciplined administration,
without adding hidden financial exposure.
Full reserve is the baseline that keeps custody aligned with that expectation.
A common misunderstanding: "we have reserves" vs "custody is fully reserved"
Some institutions interpret "full reserve" as "we have enough assets overall" or "we are solvent."
That's not the custody question.
The custody question is more specific:
- Is client bitcoin held as client bitcoin, or does it become part of the institution's financial activity?
A custodian can be solvent today and still be running a model where withdrawals depend on:
- counterparties remaining healthy,
- markets remaining liquid,
- or internal liquidity management.
Full-reserve custody tries to avoid that dependence.
Full reserve has two dimensions
To be meaningful, "full reserve" must be true in both asset treatment and operability.
1. Asset treatment: what the institution is allowed to do
A well-run custodian should be able to say, plainly, whether client bitcoin can ever be:
- lent,
- pledged,
- re-used as collateral,
- or otherwise deployed.
If the answer is "yes," it may still be a legitimate service, but it is not full-reserve custody.
2. Operability: whether withdrawals are structurally supportable
Even a full-reserve custodian can fail a client if it becomes operationally unable to process withdrawals.
So full reserve should be paired with:
- clear withdrawal policies,
- mature procedures,
- and an operating model designed for continuity.
Full reserve removes the financial reason withdrawals fail. Continuity addresses the operational reasons they can fail.
What to look for
You don't need a deep technical review to evaluate whether a "1:1" claim is meaningful. You need credible, consistent signals.
1. Plain-language terms
Look for simple statements that clearly define:
- whether client bitcoin is segregated,
- whether it can be used,
- and what the custodian is permitted to do with it.
Vague language is a signal. If an institution cannot say "client bitcoin is not used" without qualifiers, assume it is used.
2. Withdrawal posture that matches the claim
Full reserve should show up in behavior:
- withdrawals are routine,
- policies are stable,
- and the institution is not uncomfortable with clients exiting.
A custodian that treats withdrawals as an exception is telling you something about its incentives or its liquidity posture.
3. External assurance that is sober
"Proof" should be conservative and understandable.
Depending on jurisdiction and maturity, credible assurance may include:
- independent audits of internal controls,
- reserve attestations,
- and consistent disclosures over time.
The key is consistency. One impressive document matters less than a steady record of reliable behavior.
4. Incentives aligned with custody
Ask how the institution makes money.
A custody-first institution earns primarily from custody fees. Execution can exist as a service, but custody should not require constant activity, lending spreads, or balance-sheet deployment.
The point is incentives, not morality.
What full reserve does not mean
Full reserve is a custody standard. It does not imply:
- Price stability. Bitcoin can be volatile.
- No operational incidents. Systems can have outages; continuity planning addresses this.
- No counterparties anywhere. Execution and fiat rails can involve counterparties; the custody mandate is about how client bitcoin is held.
- A guarantee of outcomes. It's a boundary and a discipline, not a prophecy.
The custody framing
In our view, the strongest custody relationships are built on a small number of durable rules.
Full-reserve custody is one of those rules.
It means:
- custody is custody,
- finance is finance,
- and the categories are not mixed.
If you want lending or yield, you should choose a product that discloses those risks and evaluate it as finance.
If you want custody, you should choose a custodian that is paid to safeguard, without needing to "put assets to work."
Full-reserve custody is the baseline for a durable custody relationship in bitcoin.
