Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing in response to the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have several concerns regarding the proposed rule's impact on small businesses and its lack of expertise in the digital assets and cryptocurrency industry. Firstly, I am concerned about the potential impact on small businesses. The new reporting requirements will impose additional costs on small businesses and start-up protocols that would not otherwise be required to track personal identifiable information. This would burden these businesses with unnecessary expenses and put them at a significant disadvantage, potentially stifling innovation within the industry. It is crucial to consider the potential negative consequences that these additional costs may have on entrepreneurship and the growth of small businesses. Additionally, I believe there is a lack of industry expertise in the drafting of this proposal. The SEC does not have sufficient knowledge or understanding of digital assets and cryptocurrency, leading to a dearth of understanding of the industry's unique characteristics. The laws that existed in 1932 and the Howey test do not appropriately apply to smart contracts within subsets like HEX, PULSECHAIN, and PULSEX. These digital assets operate on innovative blockchain technologies that require a nuanced understanding and specialized regulatory approach. The proposed rule fails to adequately address the specific challenges and opportunities presented by digital assets, potentially stifling innovation and hindering the development of this rapidly growing industry. It is important to recognize the role that digital assets and cryptocurrencies play in the modern financial landscape. These innovative technologies have the potential to revolutionize financial services, democratize access to capital, and facilitate economic growth. However, enforcing broad regulations without a comprehensive understanding of the underlying technologies and market dynamics may impede the responsible development and utilization of these assets. In light of these concerns, I urge the SEC to consider the potential unintended consequences of the proposed rule on small businesses and the industry as a whole. I encourage the SEC to seek input and guidance from industry experts who possess the necessary knowledge and experience in the digital assets and cryptocurrency field. Furthermore, I recommend that the SEC engage in a dialogue with stakeholders to better understand the innovative nature of the market and craft regulations that strike a balance between investor protection and fostering innovation. Thank you for considering my comments. I believe that with a more nuanced approach and a greater understanding of the digital assets industry, the SEC can truly achieve its goal of enhancing investor protections while promoting responsible innovation. Sincerely, Milan Karaman