Oct. 28, 2023
Dear Commissioners of the Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on Safeguarding Advisory Client Assets, specifically as it pertains to digital assets or cryptocurrencies. While I understand the need for investor protection and the importance of enhancing the custody rule, I strongly believe that the proposed rules may stifle blockchain innovation by imposing excessive regulatory burdens and impediments. Digital assets, such as cryptocurrencies, have emerged as a transformative force in the financial industry. Built on the foundation of blockchain technology, these assets offer not only new avenues for investment but also innovative solutions in areas such as cross-border transactions and decentralized finance. However, regulatory uncertainties surrounding digital assets have posed significant challenges to both businesses and investors. The proposed rule extends its coverage to include digital assets held in a client's account, which is a step in the right direction to address the growing importance of this asset class. However, I am concerned that the rules may inadvertently suppress innovation and deter investment by burdening market participants with excessive compliance costs. One of the fundamental principles of blockchain technology is decentralization, which challenges traditional custodial frameworks. The unique nature of digital assets requires a nuanced approach that recognizes the different custody models employed by digital asset custodians. Imposing blanket regulatory requirements without considering the distinct characteristics of digital assets may impede the development and adoption of this technology. Encryption techniques and smart contract functionalities embedded in blockchain networks often ensure transparency and enhance security, providing a level of protection for digital assets. These inherent features can significantly reduce the risk of asset loss or misappropriation. Imposing extensive custodial requirements on digital assets may therefore be unnecessary and burdensome, hindering the potential benefits that this technology can bring to the financial industry. Furthermore, I would like to highlight the need for clarity and consistency in regulatory frameworks surrounding digital assets. The lack of harmonized global regulation creates significant uncertainties for market participants and undermines the potential growth and acceptance of this emerging asset class. Instead of excessive regulatory burdens, a more coordinated and consistent approach to regulating digital assets should be pursued to facilitate both investor protection and innovation. In conclusion, I respectfully urge the Securities and Exchange Commission to reconsider the potential negative impact of the proposed rules on blockchain innovation and digital asset adoption. A balanced and thoughtful regulatory framework that preserves investor protection while fostering technological advancement in the financial industry is essential. I appreciate the commission's commitment to public comment and encourage further engagement with industry stakeholders and experts to ensure that any regulatory measures strike the right balance and enable the full potential of blockchain technology. Thank you for considering my concerns. I trust that you will carefully evaluate the implications of the proposed rule in light of blockchain innovation and investor interests. Sincerely, A Concerned U.S. Citizen