Oct. 30, 2023
Dear Secretary, I am writing to express my concerns about the proposed rule regarding custody of cryptocurrencies and digital assets. As an individual who has invested in these markets, I believe that it is crucial to ensure that proper regulations are put in place to protect investors and prevent fraudulent activities. However, I fear that the proposed rule may not be adequate in achieving these goals. Firstly, the rule requires that all digital asset custodians register with the Securities and Exchange Commission (SEC) and comply with certain standards for holding and safeguarding digital assets. While this may sound reasonable, it could have unintended consequences. Many small and medium-sized businesses, as well as individuals, currently provide custodial services for digital assets without being registered with the SEC. These entities may not have the resources or expertise to comply with the new requirements, which could force them out of business. This would limit competition in the market and reduce choice for investors. Furthermore, the proposed rule does not address the issue of decentralized finance (DeFi). DeFi platforms allow users to lend, borrow, and trade digital assets in a trustless manner, without relying on intermediaries. By not addressing DeFi, the rule fails to account for a significant portion of the digital asset ecosystem. It also creates regulatory arbitrage opportunities where bad actors can move their operations to DeFi platforms to avoid oversight. Additionally, the rule proposes to hold custodians liable for losses resulting from hacking attacks or other security breaches. While this may seem like a reasonable measure to protect investors, it could have the opposite effect. Custodians may become overly cautious and restrictive in their service offerings, leading to reduced liquidity and increased costs for investors. Alternatively, they may choose not to offer services related to digital assets at all, further reducing access to these markets. Lastly, I want to highlight the lack of clarity around the definition of "digital asset" in the proposed rule. The term is used extensively throughout the document but remains undefined. This vagueness creates confusion and uncertainty, making it difficult for market participants to understand what specific assets fall under the purview of the rule. In conclusion, while I appreciate the efforts of the SEC to establish a regulatory framework for digital assets, I urge you to consider the potential drawbacks of the proposed rule. I recommend that the SEC revisit the proposal, taking into account the issues raised above, and work towards creating a more comprehensive and effective set of regulations that foster innovation, competition, and investor protection in the digital asset space. Thank you for your time and consideration. Sincerely,