Oct. 14, 2023
Dear Sir/Madam As a concerned citizen and advocate for the cryptocurrency and digital asset community, I strongly oppose the proposal "Safeguarding Advisory Client Assets; Reopening of Comment Period" by the Securities and Exchange Commission (SEC). While I understand the importance of investor protections, I believe that the SEC is overreaching in its regulation of cryptocurrency and digital assets, which could stifle innovation and hinder the growth of this emerging industry. Firstly, it is crucial to recognize that cryptocurrencies and digital assets operate in a unique and decentralized manner. They are not subject to the same traditional custodial requirements as traditional financial assets. The SEC's attempt to apply the current custody rule, as outlined in 17 CFR 275.206(4)–2, to cryptocurrencies and digital assets is misguided. This rule was designed for traditional securities and does not adequately address the complexities and nuances of digital assets. Furthermore, the SEC's proposal fails to consider the existing regulatory framework surrounding cryptocurrencies and digital assets. The Financial Crimes Enforcement Network (FinCEN) has already established comprehensive regulations for virtual currencies under the Bank Secrecy Act (BSA). These regulations require virtual currency exchanges and administrators to implement robust anti-money laundering (AML) and know-your-customer (KYC) procedures. By imposing additional custody and safeguarding requirements, the SEC is duplicating efforts and creating unnecessary regulatory burdens for businesses operating in the cryptocurrency space. Moreover, the SEC's proposal could have a chilling effect on innovation within the cryptocurrency industry. Cryptocurrencies and digital assets have the potential to revolutionize financial systems and provide greater access to financial services for individuals around the world. However, by imposing stringent custody and safeguarding requirements, the SEC may discourage entrepreneurs and innovators from entering the market. This could stifle competition and hinder the development of new technologies and solutions that could benefit both investors and consumers. It is also important to note that the SEC's jurisdiction should be limited to securities regulation. While some cryptocurrencies may be classified as securities, many others do not fall under this category. The SEC's attempt to regulate all digital assets as securities is an overreach of its authority. It is crucial for regulators to adopt a nuanced approach that distinguishes between different types of digital assets and applies appropriate regulations based on their characteristics. Additionally, the SEC's proposal could have unintended consequences for investor protection. By imposing stringent custody and safeguarding requirements, the SEC may inadvertently push cryptocurrency transactions into unregulated and less transparent channels. This could increase the risk of fraud and illicit activities, as investors may seek alternative platforms and exchanges that operate outside of the SEC's jurisdiction. Instead of enhancing investor protection, this proposal may actually undermine it by driving legitimate businesses underground and making it more difficult for regulators to monitor and enforce compliance. In conclusion, while I acknowledge the importance of investor protection, I believe that the SEC's proposal "Safeguarding Advisory Client Assets; Reopening of Comment Period" represents an overreach of regulatory authority when it comes to cryptocurrency and digital assets. The current custody rule is not suitable for the unique characteristics of these assets, and the proposal fails to consider the existing regulatory framework and potential chilling effect on innovation. It is crucial for regulators to adopt a nuanced approach that balances investor protection with fostering innovation and growth in the cryptocurrency industry. Thank you for considering my comment.