Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets". While I understand the aim of enhancing investor protection and addressing gaps in the custody rule, I believe that the rule falls short in adequately considering the unique properties of cryptocurrency. The decentralized nature and technological complexities of digital assets like cryptocurrency pose challenges that must be taken into account in order to create practical and effective regulatory requirements. Firstly, the proposed rule does not adequately address the decentralized nature of cryptocurrency. Unlike traditional financial assets, digital assets function on decentralized networks such as blockchain technology. This lack of centralization makes it challenging for investment advisers to demonstrate exclusive control over the assets, as required by the rule. Imposing custody requirements that do not align with the nature of these assets could lead to impractical regulatory burdens for investment advisers and hinder the growth and innovation of the digital asset ecosystem. Furthermore, the proposed rule does not offer nuanced considerations for the various types of digital assets. The term "crypto assets" is broad and encompasses a wide range of digital assets with differing characteristics. For instance, some assets are designed for immediate transactions, while others are meant for long-term investments. Treating all crypto assets under a single umbrella fails to account for these distinctions and can result in regulatory requirements that are not tailored to the specific needs and risks associated with each type of digital asset. A more nuanced approach that takes into consideration the unique properties of different digital assets would be more appropriate and effective in safeguarding investor interests. Additionally, the rule does not adequately address the challenges of verifying ownership and demonstrating control over cryptocurrency. Unlike traditional assets that can be easily traced through centralized systems, verifying ownership and control over cryptocurrency requires specialized knowledge and technological capabilities. Imposing regulatory requirements without considering these challenges may result in investment advisers facing difficulties in complying with the rule, potentially leading to unintended non-compliance and increased risks for investors. In order to strike a balance between protecting investors and fostering innovation in the digital asset space, it is crucial for the SEC to work closely with industry participants and stakeholders. Collaboration and dialogue between regulators and the digital asset community can lead to better regulatory frameworks that consider the unique properties of digital assets. The SEC should consider establishing a working group or advisory board consisting of experts in digital assets, technology, and regulation to ensure that any proposed rules are practical, effective, and promote responsible innovation. In conclusion, I urge the Securities and Exchange Commission to thoroughly consider the unique properties of digital assets in the proposed rule "Safeguarding Advisory Client Assets". It is essential for the SEC to work collaboratively with industry participants to develop practical and efficient regulatory requirements that promote investor protection and foster innovation in the digital asset space. Thank you for considering my comments and for your continued commitment to safeguarding investor interests. Sincerely, Daniel Hauser