Oct. 31, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets." While I believe the rule intends to enhance investor protections and address gaps in the custody rule, I have significant concerns regarding the lack of clarity on the definition of digital assets, particularly in the context of cryptocurrencies and smart contracts. The proposal does not provide clear guidance on what constitutes a digital asset, leading to confusion and potential misinterpretation. In recent years, digital assets, such as cryptocurrency, have emerged as a transformative force in the financial industry, driven by innovative blockchain technology. However, the regulatory landscape surrounding these assets remains uncertain, hindering the potential growth and development of this nascent sector. One of my concerns stems from the applicability of securities laws and the Howey test, which were established in 1933 and 1946 respectively, to smart contracts within subsets like HEX, PULSECHAIN, and PULSEX. These decentralized platforms operate on the principles of blockchain, enabling the execution of self-executing contracts and various financial transactions. However, the proposed rule fails to acknowledge the unique characteristics of these digital assets, leaving them in a regulatory gray area. Given the fast-paced nature of technological advancements, it is imperative that regulatory frameworks take a nuanced approach towards digital assets. The lack of clarity surrounding their classification and regulatory obligations creates a hindrance for market participants, stifling innovation and contributing to regulatory arbitrage. Consequently, market participants face challenges when attempting to comply with existing rules that do not align with the specifics of these digital assets. To address this concern, I urge the Securities and Exchange Commission to provide clear guidance on the classification and treatment of digital assets. This should include a comprehensive evaluation of the different functionalities and economic realities these assets exhibit. By adopting a forward-looking approach to regulation, the SEC can foster innovation while ensuring investor protection and market integrity. In addition to my concerns about the lack of clarity surrounding digital assets, I also hope to use this opportunity to inquire about any general questions I may have regarding the proposal. If there is any further information or clarification you can provide, I would greatly appreciate it. Thank you for considering my public comment and for your dedication to ensuring the integrity and protection of investor assets. Sincerely, Alexander Arias