Oct. 29, 2023
I. Introduction In this dissenting opinion, we shall outline ten compelling arguments against the proposed rule by the Securities and Exchange Commission (SEC) concerning custody of digital assets. These arguments will be presented in a manner that highlights the potential risks, legal ambiguities, and practical concerns that the proposed rule may generate. We draw upon precedents and principles from relevant case law to underscore our position. II. Argument 1: Overbreadth and Vagueness The first argument against the proposed SEC rule centers on its overly broad and vague language. See, e.g., Grayned v. City of Rockford, 408 U.S. 104 (1972) (emphasizing the importance of clear and precise legal standards). The rule fails to provide adequate guidance for market participants, resulting in a lack of certainty and increasing the likelihood of unintended noncompliance. This vagueness may lead to uneven enforcement and potential arbitrariness in the application of the law, thereby undermining the rule of law. III. Argument 2: Infringement on Property Rights The proposed SEC rule potentially infringes upon individuals' property rights by imposing overly burdensome requirements for digital asset custody. See, e.g., United States v. Jones, 565 U.S. 400 (2012) (recognizing the importance of protecting individual property rights). By extending the SEC's reach into the realm of digital assets, the rule may undermine the fundamental right to own and control one's property, thereby violating constitutional principles. IV. Argument 3: Legal Ambiguities in the Definition of "Digital Assets" The proposed SEC rule suffers from legal ambiguities surrounding the definition of "digital assets." See, e.g., NLRB v. Hearst Publications, Inc., 322 U.S. 175 (1944) (emphasizing the importance of clear statutory definitions). The vague and broad definition of digital assets in the rule may encompass a wide range of assets, including those that are not securities or investment contracts, thereby potentially subjecting them to unwarranted SEC oversight. V. Argument 4: Increased Compliance Costs The proposed SEC rule would impose significant compliance costs on market participants, particularly small businesses and individual investors. See, e.g., FTC v. Bunte Brothers, Inc., 312 U.S. 349 (1941) (considering the economic impact of regulatory requirements). These costs may stifle innovation and discourage participation in the digital asset market, ultimately harming consumers by limiting their access to a diverse range of investment opportunities. VI. Argument 5: Lack of Necessity for SEC Involvement The proposed rule assumes that the SEC is the most appropriate regulator for digital assets, despite the existence of other regulatory bodies with more relevant expertise. See, e.g., Mistretta v. United States, 488 U.S. 361 (1989) (discussing the importance of assigning regulatory responsibilities to appropriate agencies). By extending the SEC's jurisdiction into areas where other regulators may be better suited, the proposed rule risks creating unnecessary overlap and confusion in the regulatory landscape. VII. Argument 6: Potential for Double Regulation The proposed SEC rule may lead to double regulation of digital assets, as they may already be subject to oversight by other federal or state agencies. See, e.g., United States v. Lopez, 514 U.S. 549 (1995) (addressing the issue of federal overreach in regulation). By imposing additional regulatory requirements, the SEC rule may create duplicative and potentially conflicting obligations for market participants, increasing compliance costs and legal uncertainty. VIII. Argument 7: Disproportionate Impact on Small Businesses The proposed SEC rule would have a disproportionate impact on small businesses and startups, which may lack the resources to comply with the new requirements. See, e.g., Hodel v. Indiana, 452 U.S. 314 (1981) (considering the impact of regulations on small businesses). The rule could stifle innovation and hinder the growth of small companies operating in the digital asset space, ultimately harming consumers by limiting their access to new products and services. IX. Argument 8: Inadequate Consideration of International Implications The proposed SEC rule fails to adequately consider the international implications of its provisions, potentially creating conflicts with foreign regulatory regimes. See, e.g., Zschernig v. Miller, 389 U.S. 429 (1968) (addressing the importance of considering international implications in legislation). By imposing unilateral requirements on digital asset custody, the SEC rule may create obstacles to cross-border transactions and hinder the development of a coherent global regulatory framework for digital assets. X. Argument 9: Lack of Evidence Supporting Necessity The proposed SEC rule lacks sufficient evidence demonstrating that the imposition of new custody requirements is necessary to protect investors and maintain market integrity. See, e.g., SEC v. Chenery Corp., 318 U.S. 80 (1943) (emphasizing the importance of evidence-based regulation). In the absence of clear justification for the rule, it is difficult to justify the potential costs and burdens that it would impose on market participants. XI. Argument 10: Undermining of Market Efficiency Finally, the proposed SEC rule may undermine the efficiency of the digital asset market by imposing unnecessary barriers to entry and increasing transaction costs. See, e.g., SEC v. National Securities, Inc., 393 U.S. 453 (1969) (recognizing the importance of market efficiency in securities regulation). By making it more difficult for participants to engage in digital asset transactions, the rule may stifle the growth and development of this emerging market, ultimately harming investors and the broader economy. In conclusion, we have presented ten compelling arguments against the proposed SEC rule concerning custody of digital assets. These arguments highlight the potential risks, legal ambiguities, and practical concerns that the proposed rule may generate. We urge the Commission to carefully consider these arguments and reevaluate the necessity and scope of the proposed rule to ensure that it effectively achieves its intended goals without unduly burdening market participants or stifling innovation in the digital asset space.