Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the Securities and Exchange Commission's (SEC) efforts to enhance investor protections and address gaps in the custody rule, I believe there are several aspects of the proposed rule that require further consideration and revision. One particular area of concern is the inadequate consideration of the unique properties of cryptocurrency. The SEC's proposal does not take into account the decentralized nature and technological complexities of cryptocurrency, leading to impractical and burdensome regulatory requirements. Cryptocurrency operates on a global scale, with transactions validated and recorded on a distributed ledger. The decentralization of cryptocurrency does not lend itself to traditional custodial arrangements or government oversight. The proposed rule aims to enhance the protection of client assets by addressing how investment advisers safeguard these assets, including crypto assets. However, the current regulatory framework fails to acknowledge the challenges associated with demonstrating exclusive control over crypto assets. The SEC should work towards developing a more nuanced approach that effectively balances investor protection with the unique characteristics of cryptocurrency. It is imperative to recognize that the cryptocurrency market has developed its own set of best practices and security measures that may differ from those employed by traditional custodians. Rather than imposing a one-size-fits-all regulatory approach, the SEC should collaborate with industry participants to gain a better understanding of the existing safeguards in place for cryptocurrency assets. This collaborative approach will ensure that any regulatory requirements are practical, effective, and aligned with industry norms. Furthermore, the proposed rule's emphasis on qualified custodians may not be suitable for the storage and safeguarding of certain crypto assets. As the SEC seeks to address how advisers can safeguard assets that cannot be maintained with a qualified custodian, it should consider alternative methods of demonstrating appropriate controls and security measures specific to cryptocurrency. Enhanced recordkeeping, separation of duties, and regular reviews can provide robust safeguards without resorting to outdated custodian-based solutions. To ensure effective regulation, the SEC should actively engage with industry experts, blockchain enthusiasts, and experienced market participants. This collaboration will enable the SEC to gain valuable insights into the unique challenges posed by cryptocurrency and establish a regulatory framework that fosters innovation while protecting investor interests. In conclusion, I urge the SEC to thoroughly evaluate the implications of the proposed rule on cryptocurrency assets and implement changes that take into account their decentralized nature. By working closely with industry stakeholders, the SEC can achieve a balanced regulatory approach that safeguards client assets without stifling innovation. I appreciate your consideration of my concerns and trust that the SEC will act in the best interest of both investors and the rapidly evolving cryptocurrency market. Thank you for the opportunity to provide input on this important matter.