Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing in response to the proposed rule on "Safeguarding Advisory Client Assets." As an investor concerned about market liquidity and the impact on digital assets, I would like to express my reservations regarding certain aspects of the rule. The proposed rule, while aiming to enhance investor protections, may inadvertently hinder market liquidity for digital assets. Digital assets, such as cryptocurrencies, have been rapidly gaining popularity and transforming the financial industry. However, regulatory uncertainties surrounding these assets already pose challenges. The proposed rule, as it currently stands, may exacerbate these challenges and make it more difficult for investors to buy and sell these assets. While I understand the need to ensure the safeguarding of client assets, it is crucial to consider the unique characteristics of digital assets and their underlying technology, blockchain. Digital assets operate on decentralized networks and rely on cryptographic algorithms for security. This technology sets them apart from traditional assets, and regulatory frameworks must be flexible to accommodate their unique features. Fragmented regulations and imposed operational requirements can create regulatory uncertainties and hinder market confidence. In turn, this may discourage innovation and investment in the digital asset space. It is important for the SEC to strike a balance – ensuring investor protection while fostering a regulatory environment that encourages the growth and development of digital assets. The proposed rule should carefully consider the challenges of demonstrating exclusive control over digital assets. The nature of blockchain technology makes it difficult to establish and verify custody. It is crucial to include provisions that recognize the intricacies of recording exclusive control over digital assets and provide alternative means of safeguarding these assets. Furthermore, the proposed rule should recognize the importance of market liquidity for digital assets. Market liquidity is essential for the functioning of efficient financial markets and facilitating price discovery. Restrictive measures that impede liquidity may lead to inefficient markets and hinder the ability of investors to buy and sell digital assets at fair prices. In crafting the proposed rule, it is important for the SEC to engage with industry participants, market experts, and stakeholders to better understand the implications of the rule on market liquidity and the digital asset ecosystem. This collaborative approach will ensure that regulatory actions are well-informed and strike a suitable balance between investor protection and market development. In conclusion, as a concerned investor, I urge the SEC to closely consider the potential negative impact on market liquidity for digital assets. The proposed rule should be flexible enough to accommodate the unique characteristics of digital assets and their underlying technology. It is crucial to foster an environment that encourages innovation and investment in this rapidly evolving space, while still ensuring investor protection and market integrity. Thank you for considering my comments and taking them into account as you further develop the rule. I appreciate the opportunity to voice my concerns and contribute to the dialogue surrounding the regulation of digital assets. Sincerely, D.H.