Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets" and its potential negative impact on blockchain innovation. While I understand the need for enhanced investor protections and the importance of safeguarding client assets, it is crucial to strike a balance that does not stifle technological advancements and hinder the growth of emerging industries such as blockchain. The proposed rules, particularly the amendments aimed at addressing the application of the custody rule to crypto assets, seem to impose excessive regulatory burdens and create unnecessary impediments. Blockchain technology has the potential to revolutionize various sectors, including finance, by providing faster, more secure, and transparent systems. It is essential for regulators to foster an environment that encourages innovation in this space rather than stifling it with burdensome regulations. Imposing stringent custodial requirements on crypto assets could deter investment advisers from engaging with blockchain-based assets and platforms. It may put them at a disadvantage compared to traditional investments, limiting their ability to harness the potential benefits of distributed ledger technology. The proposed rules should take into account the unique features and challenges associated with blockchain assets, ensuring that the regulatory framework does not impede their development. Additionally, the proposed amendments' focus on demonstrating exclusive control over crypto assets raises practical concerns. Blockchain operates on a decentralized network, making it difficult to fit within the traditional framework of custody rules. Imposing overly strict requirements without considering the distinctive nature of blockchain assets may result in unintended consequences, hindering the growth of this transformative technology. It is crucial to strike a balance between investor protections and fostering innovation. Rather than imposing blanket regulations, a more targeted approach that addresses the specific risks associated with blockchain assets would be appropriate. Regulators should work closely with industry stakeholders to design a regulatory framework that ensures investor protection without stifling technological advancements. Furthermore, it is worth considering the potential benefits of blockchain technology in enhancing investor protections. The inherent transparency of blockchain can provide greater visibility into asset movements, reducing the risks of fraud and manipulation. By harnessing the potential of blockchain, regulators can create more robust and efficient systems for monitoring and oversight, ultimately benefiting both investors and the integrity of the financial markets. In conclusion, I urge the Securities and Exchange Commission to carefully consider the potential negative impact on blockchain innovation when finalizing the proposed rule "Safeguarding Advisory Client Assets." It is essential to strike a balance between investor protections and fostering innovation in emerging technologies like blockchain. By adopting a flexible and tailored approach, the SEC can ensure both effective investor safeguards and the continued growth of the blockchain industry. Thank you for considering my comment. Sincerely, Alex