Oct. 15, 2023
October 14th 2023 Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 Subject: Public Comment on Proposed Rule: Safeguarding Advisory Client Assets Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on safeguarding advisory client assets, specifically in relation to cryptocurrency and digital assets. While I understand the need for investor protection and regulatory oversight, I believe that the SEC's approach in this proposal exhibits overreach and fails to consider the unique characteristics of these emerging technologies. Firstly, it is important to note that existing laws already provide a framework for the regulation of digital assets. The Securities Act of 1933 and the Securities Exchange Act of 1934, among others, have been successfully applied to various asset classes, including cryptocurrencies. These laws ensure transparency, disclosure, and accountability without the need for additional burdensome requirements specifically targeting digital assets. By imposing additional regulations and reporting obligations on advisors dealing with cryptocurrency, the SEC is creating an unnecessary burden that may stifle innovation and hinder the growth of this nascent industry. Furthermore, the proposed rule fails to recognize the inherent differences between traditional assets and digital assets. Cryptocurrencies operate on decentralized networks, and their ownership and transfer are recorded on public ledgers known as blockchains. These unique characteristics provide a level of transparency and security that is often superior to traditional financial systems. By subjecting digital asset advisors to the same stringent requirements as traditional asset advisors, the SEC is disregarding the distinct nature of these assets and treating them as if they pose the same risks. Moreover, the proposed rule does not adequately address the challenges associated with custodial services for digital assets. Unlike traditional assets, cryptocurrencies can be stored in various ways, including self-custody wallets and third-party custodians. The SEC's attempt to impose a one-size-fits-all approach to custody fails to consider the diverse range of custody solutions available in the digital asset space. This approach not only undermines innovation but also hampers the ability of advisors to provide tailored solutions that meet the unique needs of their clients. Additionally, the proposed rule may have unintended consequences for small and innovative firms operating in the digital asset space. The compliance costs associated with implementing the proposed regulations could disproportionately impact smaller firms, potentially leading to market consolidation and reduced competition. This could hinder the development of new technologies and limit consumer choice in the digital asset market. Furthermore, the SEC's proposed rule fails to acknowledge the evolving nature of digital assets and the rapid pace of technological advancements. The cryptocurrency industry is constantly evolving, with new protocols, tokens, and decentralized applications being developed regularly. Imposing rigid regulations at this stage could stifle innovation and discourage entrepreneurs from entering the market. Instead of stifling innovation, regulators should adopt a flexible and adaptive approach that allows for experimentation and growth while ensuring investor protection. In conclusion, while I recognize the importance of safeguarding advisory client assets, I believe that the SEC's proposed rule on cryptocurrency and digital assets exhibits overreach and fails to consider the unique characteristics of these emerging technologies. Existing laws already provide a framework for regulation, and imposing additional burdensome requirements specifically targeting digital assets may hinder innovation and impede the growth of this nascent industry. I urge the SEC to reconsider its approach and adopt a more nuanced and flexible regulatory framework that fosters innovation while ensuring investor protection. Thank you for your efforts in protecting us as the public. And thank you for your time. Tyler