Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concern regarding the proposed rule on "Safeguarding Advisory Client Assets" and its potential overreach of regulatory authority. While I appreciate the aim of enhancing investor protections and addressing gaps in the custody rule, I believe that the SEC's proposed rule may exceed its regulatory authority, encroaching on areas that should be regulated by other agencies. One specific area of concern is the treatment of digital assets, particularly decentralized cryptocurrencies like HEX, PULSECHAIN, and PULSEX. These tokens operate on the Ethereum blockchain and are decentralized in nature. Unlike traditional assets, no single entity operates or controls these tokens. They are programmatically managed and governed by the code itself, operating on a secure and immutable blockchain. It is crucial to recognize that decentralized cryptocurrencies like HEX, PULSECHAIN, and PULSEX have unique characteristics and do not involve a central figure or expectation of profits from the work of others. Individuals interact with the code and write transactions on the blockchain without any reliance on a central authority. Therefore, applying the same conventional custody rules to decentralized cryptocurrencies may not be appropriate. The proposed rule's discussion of the challenges in demonstrating exclusive control over crypto assets fails to consider the fundamental nature of decentralized cryptocurrencies. It is essential for regulators to understand these unique features and work collaboratively with other regulatory bodies and industry stakeholders to develop a comprehensive framework specifically designed to regulate digital assets and foster their responsible growth. Furthermore, I would like to address the economic analysis conducted by the SEC in relation to the proposed rule. While the SEC acknowledges the costs and benefits of the amendments, the qualitative and quantified assessments of the economic effects fail to fully capture the potential impact on market participants and competition. The proposed rule, as it stands, may impose significant compliance costs on investment advisers, especially those who engage with decentralized cryptocurrencies. These costs, if not carefully managed, could stifle competition and hinder capital formation, ultimately limiting investor choice and access to innovative investment opportunities. A more nuanced analysis is required to strike a balance between investor protection and the promotion of efficient capital markets. In conclusion, I respectfully request the Securities and Exchange Commission to reconsider the proposed rule on "Safeguarding Advisory Client Assets" and its potential overreach of regulatory authority. It is crucial to acknowledge the unique challenges posed by decentralized cryptocurrencies, such as HEX, PULSECHAIN, and PULSEX, and to work collaboratively with other regulatory bodies and industry participants to develop a comprehensive and tailored regulatory framework for these assets. Additionally, I urge the SEC to conduct a more thorough and nuanced economic analysis to ensure that the proposed rule strikes the right balance between protecting investors and promoting economic growth. Thank you for considering my comments on this important matter. Sincerely, Karan Santosh Kumar