Oct. 14, 2023
Dear Sirs, 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 digital assets is misguided and fails to consider the fundamental differences between these two asset classes. This approach not only disregards the innovative nature of cryptocurrencies but also imposes unnecessary burdens on market participants. Furthermore, the SEC's proposed safeguarding rule, 17 CFR 275.223–1, could have unintended consequences for the cryptocurrency industry. By imposing stringent custody requirements on investment advisers, the SEC risks stifling innovation and discouraging investment in this rapidly evolving space. It is important to foster an environment that encourages responsible participation in the cryptocurrency market while also protecting investors. However, the proposed rule goes beyond what is necessary to achieve these goals. Additionally, the SEC's approach fails to consider the existing regulatory framework that already applies to cryptocurrencies and digital assets. The Financial Crimes Enforcement Network (FinCEN) has established comprehensive regulations for virtual currency businesses, including anti-money laundering (AML) and know-your-customer (KYC) requirements. These regulations are specifically tailored to address the unique characteristics of cryptocurrencies and digital assets. By imposing additional custody requirements, the SEC is duplicating efforts and creating unnecessary regulatory overlap. 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 traditional financial systems and provide greater access to financial services for underserved populations. However, by imposing burdensome custody requirements, the SEC may deter investment advisers from engaging with these assets, limiting their potential for growth and innovation. It is also important to note that the SEC's jurisdiction should be limited to securities and investment products. Cryptocurrencies and digital assets are not inherently securities, and many do not meet the definition of an investment contract as outlined in the Howey Test. The SEC's attempt to regulate these assets as securities could lead to regulatory overreach and hinder the development of this nascent industry. It is crucial for the SEC to recognize the unique nature of cryptocurrencies and digital assets and tailor regulations accordingly. In conclusion, while investor protection is important, the SEC's proposal "Safeguarding Advisory Client Assets; Reopening of Comment Period" demonstrates an overreach in its regulation of cryptocurrency and digital assets. The proposed rule fails to consider the fundamental differences between traditional financial assets and digital assets, imposes unnecessary burdens on market participants, duplicates existing regulatory efforts, stifles innovation, and potentially exceeds the SEC's jurisdiction. It is essential for the SEC to adopt a more nuanced and balanced approach that fosters innovation while ensuring investor protection in the cryptocurrency and digital asset space. Thanks. J.D.A Sent from Proton Mail mobile