Oct. 23, 2023
David Sheldon Gomez [REDACTED] Date: 10/22/23 Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Subject: Public Comment on Proposal "Safeguarding Advisory Client Assets" To whom it may concern, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). I appreciate the SEC's commitment to enhancing investor protections and addressing gaps in the custody rule. However, I have concerns about the rule's impact on digital assets or cryptocurrency and the need for the SEC to consider the unique properties and technological complexities associated with these assets. Digital assets, such as cryptocurrency, have transformed the financial landscape, offering new opportunities for investment and innovation. However, the regulatory uncertainties surrounding digital assets have hindered their mainstream adoption and integration into traditional financial systems. In this regard, the SEC's proposed rule lacks an adequate consideration of the unique properties and decentralized nature of digital assets, leading to impractical and burdensome regulatory requirements. The proposed rule fails to recognize that cryptocurrencies, by design, operate on distributed ledger technology like blockchain. This technology ensures transparency, security, and integrity in transactions, which are key advantages compared to traditional custodial systems. The custody of digital assets is decentralized, eliminating the need for a central authority to verify and secure transactions. By not acknowledging these unique characteristics, the proposed rule misses an opportunity to establish appropriate safeguards for digital asset custodians and advisors. Moreover, the technological complexities associated with digital assets pose unique challenges for custodians. The proposed rule's requirements for demonstrating exclusive control over investment assets are impractical in the context of digital assets. Cryptocurrencies can be stored in various forms, including hardware wallets or decentralized finance (DeFi) protocols, where custody may not involve traditional custodians. Therefore, mandating the same level of control as traditional custodial assets would be unreasonable and burdensome. The proposed rule should include provisions that consider and accommodate the decentralized nature of digital assets. This could be achieved by recognizing alternative custody arrangements, such as multi-signature wallets or smart contracts deployed on blockchain networks, which provide robust security mechanisms and align with the distributed nature of digital assets. By doing so, the SEC would foster innovation and ensure that investor protections are appropriately balanced with the realities of digital asset custody. Additionally, the proposed rule should consider the impacts of regulatory burdens on firms engaged in digital asset custody. The rigorous compliance and reporting requirements associated with the proposed rule pose significant costs on custodians of digital assets, particularly smaller firms, limiting their ability to compete with established custodians in traditional markets. The SEC should strive to create a regulatory environment that promotes fair competition and fosters growth in the digital asset space without stifling innovation. In conclusion, while I appreciate the SEC's efforts to enhance investor protections through the proposed rule, it is crucial to address the specific concerns and technological complexities associated with digital assets, such as cryptocurrency. I urge the SEC to consider alternative custody arrangements and strike a balance between investor protections and the unique characteristics of digital assets to ensure a vibrant and innovation-friendly environment. By doing so, the SEC will effectively safeguard client assets while promoting the growth and maturity of the digital asset industry. Thank you for considering my comments. I appreciate your attention to this matter and encourage you to continue seeking public input on these important regulatory issues. Sincerely, David Sheldon Gomez Sent from my iPhone