Oct. 29, 2023
Thank you for the opportunity to provide public comment on the Securities and Exchange Commission's proposed rule, "Safeguarding Advisory Client Assets." I would like to express my concerns regarding the inadequate consideration of the unique properties of cryptocurrency within the proposed rule. While I understand the need to enhance investor protections and address gaps in the custody rule, I believe the SEC's approach to regulating cryptocurrency fails to take into account its decentralized nature and technological complexities. As such, the proposed regulatory requirements related to crypto assets appear impractical and may cause unintended consequences, hindering innovation and growth within the industry. Cryptocurrency operates on a decentralized network, where ownership and control of assets are not vested in traditional custodial entities. The regulatory regime that governs the cryptocurrency space primarily revolves around Know Your Customer (KYC) laws and regulation, which focus on establishing the identity of individuals involved in cryptocurrency transactions. These existing KYC laws have proven to be effective in preventing illicit activities, including money laundering and terrorist financing. Attempting to extend the existing custody rule to encompass crypto assets, without proper consideration for their unique properties, imposes unnecessary burdens on investment advisors and fails to address the fundamentally different nature of cryptocurrency. The SEC's proposed rule includes requirements that may not be technically feasible or realistic within the decentralized and globally distributed framework of cryptocurrencies. Moreover, the proposed rule remains ambiguous on how investment advisors would demonstrate exclusive control over crypto assets, something that is often difficult or impossible due to the very nature of these assets. By imposing rigid and impractical custodial requirements, the SEC risks stifling technological innovation within the cryptocurrency industry and reinforcing outdated financial systems that it seeks to improve. Instead of attempting to regulate an intentionally unregulated entity, the SEC should continue to rely on existing KYC laws and collaborate with international counterparts to strengthen regulatory oversight of cryptocurrency exchanges and other intermediaries. This collaborative approach would address concerns related to illicit activities and investor protection, while still allowing the industry to flourish and innovate within a flexible and adaptable framework. In conclusion, I urge the Securities and Exchange Commission to reconsider the approach taken in the proposed rule "Safeguarding Advisory Client Assets" and thoroughly evaluate the practicality and impact of extending custody requirements to cryptocurrency assets. It is crucial for regulatory authorities to recognize the unique properties and challenges posed by this burgeoning asset class in order to strike the right balance between investor protection and fostering innovation. Thank you for considering my comments on this matter. I appreciate the opportunity to contribute to the public comment period.