Oct. 30, 2023
I am writing to express deep concerns over this proposed rule pertaining to the custody of cryptocurrencies and digital assets. I believe the proposed regulations, overlook the unique nature of digital assets and may inadvertently hinder innovation, limit consumer choice, and create undue burdens for market participants. Digital Assets are Fundamentally Different: Traditional custody regulations and standards have been developed for traditional assets which inherently differ from digital assets. The decentralized and cryptographic nature of cryptocurrencies means that "custody" does not fit neatly within our traditional understanding. Applying conventional standards could lead to misaligned incentives and counterproductive practices. Legal Precedent: The "Howey Test" is a cornerstone of our securities law, designed to determine when an arrangement involves an investment contract. It’s a prime example of how the SEC has historically recognized that not all assets and transactions fit neatly within pre-existing categories. Legal Backing: As per the Administrative Procedure Act (5 U.S.C. § 706(2)(A)), the SEC should avoid enacting rules that are "arbitrary or capricious." Setting overly rigid technical standards, without ample flexibility, could be viewed in this light. Consumer Protection and Choice: Consumers should be empowered to make informed decisions regarding their own assets. Over-regulating custodial services might push users to unsafe platforms. The proposed custody rule for cryptocurrencies and digital assets must be crafted with precision, understanding, and foresight. I urge the SEC to engage in further consultation with industry experts, market participants, and other stakeholders to craft a regulatory framework that truly aligns with the realities of the digital asset space without infringing on the constitutional rights of its citizens. Karen Summers