Oct. 31, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Re: Public Comment on Proposal "Safeguarding Advisory Client Assets" Dear Securities and Exchange Commission, I am writing to express my concerns and provide feedback on the proposed rule regarding the "Safeguarding Advisory Client Assets" proposal (Release No. IA-xxxx; File No. S7-xx-xx). While I acknowledge the Securities and Exchange Commission's (SEC) objective to enhance investor protections and address gaps in the custody rule, I would like to draw attention to the inadequacies in the consideration of the unique properties of cryptocurrency. Digital assets, including cryptocurrency, have emerged as a transformative force in the financial industry, driven by the technological advancements of blockchain. However, the proposed rule fails to adequately consider the decentralized nature and technological complexities associated with cryptocurrency. This oversight can lead to impractical regulatory requirements that hinder innovation and may not effectively safeguard client assets. The SEC's proposed rule attempts to address the application of the custody rule to crypto assets. However, the regulation needs to be more flexible and recognize the decentralized nature of cryptocurrencies. The custody of digital assets is often achieved through the use of private keys held by technology platforms or individuals. These private keys provide ownership and control, but they do not fit neatly within the traditional framework of custodial relationships. The proposed rule should take into account these unique characteristics and provide a clear regulatory framework that enables the effective safeguarding of digital assets without stifling innovation. Moreover, the proposed rule lacks clarity on how investment advisers can demonstrate exclusive control over digital assets. Traditional custodial arrangements might not align with the decentralized nature of cryptocurrencies, making it challenging for advisers to meet the requirement of exclusive control. The SEC should develop guidance or establish best practices to address these challenges and provide clarity on how investment advisers can oeffectively demonstrate exclusive control over digital assets. Additionally, the proposed rule should consider the impact of regulatory requirements on small businesses, particularly startups and innovators operating in the digital asset space. Excessive compliance costs and complex regulatory frameworks can disproportionately burden smaller firms and impede entrepreneurial activity and competition. The SEC should actively seek input from industry stakeholders and collaborate to strike a balance between investor protection and fostering innovation in the evolving digital asset ecosystem. In conclusion, I urge the SEC to consider the unique properties of cryptocurrency and its decentralized nature when finalizing the rule. The regulatory framework should provide guidance that supports innovation and safeguards client assets effectively. Collaboration with industry participants and actively seeking input will foster a more inclusive and comprehensive regulatory landscape. Thank you for considering my comments and addressing these concerns appropriately in the final rule. I believe that by taking these factors into account, the SEC can ensure a regulatory environment that protects investors while fostering innovation and growth in the digital space.