Oct. 29, 2023
Dear SEC Commissioners, I appreciate the opportunity to provide feedback on the recent SEC proposal (S7-04-23). As an individual who is passionate about cryptocurrency and an everyday crypto investor, I have carefully reviewed the proposal and have several concerns that I would like to address. Disincentivizing Smaller Investors and Custodians: I am deeply concerned that the proposal, as currently constructed, may disincentivize smaller investors and custodians from participating in the financial system. The substantial resources required to comply with the proposed control documents, audits, transaction history, and separation of client assets could impose burdensome costs. These additional costs could erode the already small margins experienced by the average investor and result in higher fees, making it harder for individuals to participate in the market effectively. Complexity and Ambiguity: The proposal is remarkably lengthy, repetitive, and vague, making it challenging for the average person to digest and comprehend. Many comments on the proposal are not focused on the specific points, which are often buried deep within the document. Simplifying the language and structure of the proposal would enhance accessibility and promote a more informed public discourse. Global Jurisdiction Expansion: The proposal seeks to expand the SEC's jurisdiction to include non-US countries and non-securities. This expansion raises ethical, moral, and practical concerns. The ability to assert jurisdiction over countries and to increase the commission's scope without clear and transparent motives is questionable. Moreover, creating a global database of securities, cash, and non-securities for entities the SEC wishes to pursue could increase the risk of cyberattacks, potentially endangering sensitive financial data. Cryptocurrency Classification: The proposal suggests classifying most cryptocurrencies, except BTC and ETH, as securities. This classification could be seen as an attempt to create a monopoly in the cryptocurrency industry, potentially limiting the growth of decentralized cryptocurrencies and favoring larger firms. The proposal's mention of hardware wallets, hot and cold storage, and the irreversibility of transactions may indicate a knowledge gap regarding practical cryptocurrency applications, which often involve multiple wallets and complex asset management across chains. Innovation and Responsibility: It's important to recognize that blockchain technology is a protected human right for free speech, and not all decentralized crypto assets are associated with fraudulent activities. While scams exist, it is the responsibility of individual investors to educate themselves about the space and take appropriate security measures. Attempting to shift the costs of failed investments back onto investors through the proposal may be perceived as patronizing and could hinder innovation. In conclusion, I urge the SEC to reconsider the current proposal in light of these concerns. Cryptocurrency has the potential to empower individuals financially, especially in times of economic uncertainty. Overregulation and stifling innovation may have unintended consequences, including pushing cryptocurrency users to seek investments outside the United States, which could impact the domestic economy negatively. Thank you for considering my comments, and I look forward to a thoughtful and balanced approach to cryptocurrency regulation. Sincerely, Karen Phillips