Sep. 28, 2023
The Securities and Exchange Commission's (SEC) proposed rule to amend the definition of "exchange" under the Securities Exchange Act of 1934 (Exchange Act) has several dangers and implications: Regulatory Uncertainty: The proposed rule aims to include trading systems for crypto asset securities within the definition of an "exchange." This expansion of regulatory scope may introduce uncertainty for market participants, as it could subject them to new and potentially complex regulatory requirements. This will deter innovation and investment in the crypto asset space. Compliance Costs: The expansion of the definition of "exchange" may require crypto asset trading platforms to comply with additional regulatory obligations, such as registration, reporting, and surveillance requirements. These compliance costs can be significant, particularly for smaller platforms, limiting market access and competition. The best security is to have as little customer data as possible. How many times must public agencies be attacked by foreign hackers to learn? Reduced Accessibility: The increased regulatory burden on crypto asset trading systems could lead to some platforms choosing to exit the market or limit their services to specific regions or accredited investors. This will reduce the accessibility of crypto assets for retail investors and hinder the growth of the crypto industry. By making crypto opportunities harder to access, rather than educating the adult public on financial literacy, the poor will continue to be poorer and the wealth divide in America will continue to grow Stifling Innovation: Tighter regulation on crypto asset securities trading platforms may stifle innovation in the blockchain and cryptocurrency space. Start-ups and entrepreneurs may face greater regulatory hurdles, discouraging them from developing new and innovative technologies and services. They are already leaving to foreign competitor countries. Privacy Concerns: Cryptocurrencies and blockchain technologies are known for their privacy features. Increased regulation may require platforms to collect and share more user information, potentially compromising the privacy of users and raising concerns about data security. The best data protection is to simply not have it. Impact on Decentralized Finance (DeFi): DeFi projects, which operate on decentralized networks without intermediaries, could also be affected by this proposed rule. If decentralized exchanges and lending platforms fall within the expanded definition of an "exchange," they may have to navigate complex regulatory challenges, which will disrupt the DeFi ecosystem. It will cause a bureaucratic nightmare for the agency and developers alike. Slower Adoption: The crypto industry has been evolving rapidly, with increasing institutional interest and adoption. However, stricter regulation could slow down this adoption process, as institutional investors may be more cautious about entering a heavily regulated market. Clear Overreach: The rule represents regulatory overreach by extending the SEC's authority to cover new and evolving technologies. This as an attempt to bring emerging technologies under traditional financial regulations, are not be well-suited to the unique characteristics of crypto assets. We must stop using 90-year-old frameworks in the 21st century and instead develop new, common-sense regulations. It's important to note that while the SEC's intention might be to provide investor protection and ensure market integrity, there are concerns about the potential unintended consequences and stifling effect it will have on innovation and market accessibility in the crypto space. Public comments and further analysis will be critical in shaping the final rule and addressing these potential dangers. Sincerely, A Patriot