Oct. 29, 2023
Dear Sir/Madam, I am writing to express my concerns regarding the "Safeguarding Advisory Client Assets" proposal by the Securities and Exchange Commission (SEC). While I understand the goal of enhancing investor protections and addressing gaps in the custody rule, I believe that certain aspects of the proposal require revision in order to accurately reflect the unique properties of cryptocurrencies and avoid imposing impractical regulatory requirements. One of the key areas of concern is the inadequate consideration given to the decentralized nature and technological complexities of cryptocurrency. The proposal fails to account for the fact that cryptocurrencies operate on a public blockchain, which inherently lends transparency and reduces the risk of misappropriation or client asset loss. Instead, the proposed rule imposes burdensome requirements on investment advisers, treating digital assets in a manner that is more aligned with traditional custodial instruments. Cryptocurrencies, such as Bitcoin and Ethereum, represent a technological advancement with the potential to transform finance. They are disrupting traditional financial systems by enabling peer-to-peer transactions and eliminating intermediaries. However, the current regulatory uncertainties surrounding cryptocurrencies hinder their wider adoption and development, limiting the benefits they can offer to investors and the economy as a whole. Imposing overly burdensome regulations on investment advisers for holding digital assets can stifle innovation and discourage the responsible inclusion of cryptocurrencies in investment strategies. It is essential for the SEC to foster a regulatory framework that encourages responsible practices while also allowing for the unique features and benefits of cryptocurrencies to be fully realized. In light of this, I urge the SEC to undertake a comprehensive review of the proposed rules related to digital assets. The SEC should work in collaboration with industry experts and relevant stakeholders to develop a regulatory approach that acknowledges the distinctive qualities of cryptocurrencies while still ensuring adequate investor protection. Additionally, I support the call for the withdrawal of certain staff no-action letters and statements regarding the custody rule. These letters and statements were formulated before the rise of digital assets and may no longer be applicable or relevant in the current landscape. Withdrawal of these letters would enable the SEC to provide clearer and up-to-date guidance on the custody of digital assets. Lastly, while I fully recognize the importance of investor protections and the need for regulatory oversight, it is crucial to strike a balance between these objectives and their associated compliance costs. The proposed rule places a significant burden on investment advisers, particularly in terms of reporting, compliance, and recordkeeping requirements. This could disproportionally impact small entities and hinder the growth of the advisory industry. In conclusion, I urge the SEC to reconsider the proposed rule and amend it to fully consider the unique properties of cryptocurrencies. The SEC plays a pivotal role in shaping the regulatory landscape for digital assets, and it is crucial that the rules be crafted in a manner that both ensures investor protection and fosters innovation in this rapidly evolving space. Thank you for considering my comments on this important matter. I welcome the opportunity to provide any further assistance or insights that may be helpful as you continue to refine and finalize the proposed rule. Additionally, please let me know if you have any specific questions or concerns related to the proposal that I can address.