Oct. 26, 2023
Dear Securities and Exchange Commission, I am writing in response to the proposed rule "Safeguarding Advisory Client Assets" (File No. S7-21-19). While I understand the importance of enhancing investor protections and addressing gaps in the custody rule, I have concerns regarding the inadequate consideration of the unique properties of cryptocurrency as well as certain aspects of the proposed rule. Firstly, it is crucial to acknowledge the decentralized nature and technological complexities of cryptocurrency. The SEC's approach, as outlined in the proposed rule, does not adequately take into account these unique properties. Imposing a one-size-fits-all regulatory framework on both traditional assets and digital assets could lead to impractical and burdensome requirements for investment advisers dealing with cryptocurrency. It is vital to promote innovation while ensuring investor protection, and this can only be achieved by developing regulations that are tailored to the specific nature of digital assets and the underlying technology. Furthermore, I have concerns about the practicality of the rule's provisions regarding custody of cryptocurrency assets. The proposed rule discusses challenges in demonstrating exclusive control over crypto assets, but fails to provide clear guidance on how investment advisers can effectively safeguard these assets. Given the complex nature of securing digital assets, it is imperative that the SEC works closely with industry stakeholders to develop practical and effective guidelines that address the unique risks associated with custody of cryptocurrency. Additionally, the proposed rule's recordkeeping requirements may pose significant challenges for investment advisers dealing with digital assets. It is essential to ensure that any new recordkeeping requirements take into consideration the technological limitations of blockchain technology and provide sufficient flexibility to enable compliant operations without imposing disproportionate costs on market participants. Moreover, I would like to bring attention to the potential chilling effect of the proposed rule on innovation and competition in the digital asset space. Digital assets, such as cryptocurrency, have the potential to transform the financial industry and facilitate financial inclusion. However, imposing overly burdensome regulations could stifle innovation and deter market participants from entering the space. It is crucial for the SEC to strike a balance between the protection of investors and the promotion of innovation and competition, taking into account the unique characteristics of digital assets. In closing, I strongly urge the SEC to reconsider certain aspects of the proposed rule. The SEC's regulatory approach must accurately account for the unique properties of digital assets and the technological complexities associated with cryptocurrency. By engaging in a collaborative dialogue with industry stakeholders and adopting a nuanced approach to regulation, the SEC can effectively enhance investor protection and foster innovation in the rapidly evolving digital asset landscape. Thank you for considering my public comment. I urge you to carefully evaluate the concerns raised and work towards creating a regulatory framework that is both robust and adaptable to the unique challenges and opportunities presented by digital assets. Sincerely, Thomas