Oct. 16, 2023
File Number S7-04-23 In my capacity as an engaged citizen, I am resolutely in dissent with the SEC's forthcoming legislation pertaining to the protection of advisory client assets within the cryptocurrency and digital asset sphere. Acknowledging the imperative role of regulations in safeguarding investor interests, I harbor concerns about the SEC's perceived overextension of its jurisdiction in this specific instance. The endeavor to institute exacting prerequisites for the custodianship and preservation of digital assets appears to transcend the requisites and bears the potential to obstruct the dynamism of this swiftly evolving industry. First and foremost, it is imperative to acknowledge that the existing legal framework already provides a foundation for the oversight of digital assets. The SEC's proposal appears to disregard this established legal infrastructure in favor of creating potentially unwarranted new regulations. Notably, the Securities Act of 1933 and the Securities Exchange Act of 1934 comprehensively address the regulation of securities, which can encompass certain types of digital assets. These statutes mandate registration with the SEC and disclosure to investors. The expansion of SEC oversight into custody and storage practices encroaches upon domains already encompassed by extant legislation. Moreover, the SEC's proposal appears to lack a nuanced understanding of the distinctive features of digital assets. Unlike traditional assets like stocks or bonds, digital assets are frequently held in decentralized networks, particularly blockchain technology, where custody and control are distributed across multiple participants. This decentralized architecture inherently offers security and transparency, thereby diminishing the necessity for onerous custody requirements. Imposing these stringent regulations on digital asset custody risks impeding the efficiency and effectiveness of these networks, potentially stifling innovation and industry growth. Additionally, the SEC's proposed legislation carries potential adverse consequences for small businesses and startups in the cryptocurrency space. The compliance costs associated with these regulations could pose a substantial barrier to entry, thus limiting competition and contravening the principles of fostering a fair and competitive market environment. Furthermore, it is vital to recognize that the cryptocurrency and digital asset industry is still in its formative stages. This rapidly evolving sector continually witnesses the emergence of new technologies and business models. The imposition of inflexible regulations at this nascent juncture may hinder industry development and maturation. A more adaptive, flexible regulatory approach is warranted, striking a balance between encouraging innovation and safeguarding investor interests. In conclusion, while the safeguarding of advisory client assets is indisputably essential, the SEC's proposed legislation in the cryptocurrency and digital asset domain signifies a potential overreach. Existing legal frameworks are already in place, and the SEC's intent to impose stringent custody and storage requirements could dampen innovation and impede industry growth. The unique decentralized nature of digital assets inherently promotes security and transparency, mitigating the necessity for burdensome regulations. Moreover, the proposed legislation could erect formidable barriers to entry for smaller enterprises, diminishing competition and retarding market development. A more adaptable regulatory approach is needed, one that nurtures innovation while ensuring investor protection. Sincerely, Anonymous