Oct. 30, 2023
Please find my short essay on File Number S7–04–23 below. Needless to say, I advise against the proposed amendments. Protecting Financial Freedom: A Case Against the SEC's Proposed Rule on Custody of Cryptocurrency Assets and Digital Assets Introduction The Securities and Exchange Commission (SEC) has proposed a new rule aimed at regulating the custody of cryptocurrency assets and digital assets. While the intentions behind such regulations are well-meaning, it is important to consider the potential consequences of this rule on individual freedom and innovation in the cryptocurrency space. In this essay, we will argue against the SEC's proposed rule, highlighting its potential drawbacks and the negative impact it could have on the cryptocurrency industry. Impediment to Innovation Cryptocurrency and digital asset technologies are known for their rapid innovation and transformative potential. However, the proposed rule threatens to stifle this innovation by creating a bureaucratic and regulatory burden on cryptocurrency businesses and entrepreneurs. The compliance costs associated with implementing the rule could deter startups and innovators from entering the cryptocurrency market. This stifling of innovation ultimately limits the potential for technological advancements and economic growth in the digital asset sector. Strangling Economic Growth The cryptocurrency industry has the potential to spur economic growth and job creation, which is crucial, especially in times of economic uncertainty. By imposing onerous custody regulations, the SEC risks undermining the growth of the cryptocurrency market, which has been a significant driver of job opportunities and investment. A heavy-handed regulatory approach could lead to job losses and a slowdown in economic growth, which is counterproductive to the SEC's mission. Privacy Concerns The proposed rule raises serious privacy concerns. Cryptocurrency assets have gained popularity because they offer a degree of financial privacy that traditional financial systems often lack. The rule could force individuals to reveal more about their financial transactions and holdings than they would like. While transparency and accountability are essential, this regulation could infringe on individual rights to privacy. Burden on Small Businesses The SEC's proposed rule may disproportionately affect small businesses and startups in the cryptocurrency space. Large corporations can allocate resources to meet regulatory compliance, while smaller players may struggle to keep up with the associated costs and complexities. This can lead to a concentration of power among existing big players, undermining the decentralization and democratizing potential of cryptocurrencies. Potential for Overreach Regulations can easily become overreaching, infringing on individual freedoms and hindering legitimate financial activities. The proposed rule could provide the SEC with unchecked power to impose overly restrictive regulations on the cryptocurrency industry, stifling its potential and limiting the ability of individuals to engage in financial transactions without undue government interference. Encouraging Regulatory Arbitrage Rather than promoting regulatory compliance, this rule could lead to regulatory arbitrage, where businesses and individuals seek out more favorable regulatory environments in other jurisdictions. This could result in a flight of innovative and valuable cryptocurrency projects from the United States, ultimately undermining the nation's global competitiveness in the digital asset space. Conclusion While the SEC's intention to protect investors and maintain market integrity is laudable, the proposed rule on the custody of cryptocurrency assets and digital assets has the potential to do more harm than good. It could stifle innovation, hinder economic growth, infringe on individual privacy, disproportionately burden small businesses, and encourage regulatory arbitrage. A more balanced and flexible approach that promotes industry growth while ensuring investor protection should be considered, rather than imposing rigid regulations that may do more harm than good. It is crucial for the SEC to strike a balance that preserves individual freedoms, fosters innovation, and supports the cryptocurrency industry's continued growth. -------------------- Thank you for considering my comments. Anna C Sent with Proton Mail secure email.