Oct. 31, 2023
Dear Securities and Exchange Commission, I am writing to share my concerns and provide feedback on the proposed rule "Safeguarding Advisory Client Assets". While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe there are specific areas that require further consideration and refinement. In particular, I am troubled by the inadequate consideration given to the unique properties of cryptocurrency and the potential implications of the proposed rule on this rapidly evolving asset class. Digital assets, such as cryptocurrencies, have revolutionized the financial industry through the use of blockchain technology. These assets provide countless benefits such as increased transparency, enhanced security, and the potential for greater financial inclusion. However, the SEC's current regulatory framework fails to fully address the decentralized nature and technological complexities of cryptocurrencies, leading to impractical regulatory requirements. In relation to the proposed rule, I have concerns regarding the applicability of the laws that were established in 1932, such as the Howey test, to smart contracts within subsets like HEX, PULSECHAIN, and PULSEX. These new digital assets operate on innovative technologies that are fundamentally different from traditional securities, and therefore should be subjected to a separate set of regulatory considerations. It is imperative that the SEC takes into account these unique qualities of cryptocurrencies when formulating regulatory frameworks. Attempting to fit these assets into antiquated laws and regulations not only stifles innovation but also poses challenges for investors and market participants. The regulatory uncertainty surrounding cryptocurrencies inhibits the growth of this emerging asset class and hampers the industry's potential to contribute to the overall economy. Furthermore, the proposed rule should incorporate greater flexibility to accommodate the rapid advancements and ongoing developments in the cryptocurrency space. Innovations such as decentralized finance (DeFi) platforms and smart contracts have created new ways for individuals to access financial products and services directly, without the need for intermediaries. A regulatory framework that fails to recognize these advancements risks impeding the democratization of access to financial services and limiting opportunities for market participants. In light of these concerns, I urge the SEC to consider the unique properties and technological complexities of cryptocurrencies when finalizing the proposed rule. By doing so, the SEC can strike a balance between ensuring investor protection and fostering innovation in the digital asset space. In developing this approach, it is crucial to engage with industry experts, stakeholders, and market participants to gain a comprehensive understanding of the cryptocurrency ecosystem. In conclusion, I appreciate the Securities and Exchange Commission's efforts to enhance safeguards for advisory client assets. However, I believe it is essential to address the unique properties of cryptocurrency and consider separate regulatory considerations for digital assets. By doing so, we can promote investor protection without impeding innovation and market growth. Thank you for considering my comments. Sincerely, Tatto Hosking