A proposal by the US securities regulator to tighten rules around cryptocurrency custody has met with opposition from at least two industry advocates, according to recently submitted letters.
On May 8 – the deadline to receive comments on the proposal -, The defense body for the cryptocurrency sector, the Blockchain Association, presented its letter to the Securities and Exchange Commission (SEC) criticizing its proposal to modify its custody rule.
Three days earlier, the venture capital fund Andreessen Horowitz (a16z) had sent a similar letter.
Marisa Tashman Coppel, a policy attorney for the association, tweeted on May 8 that the rule would “drastically reduce investment in digital assets” and stated that, in its current form, the rule is “illegal.”
1/Today, @BlockchainAssn Filed a comment letter to the SEC’s proposed custody rule. With recommendations, we explain how the rule would drastically curtail investment in digital assets and why finalizing the rule in its current form would be unlawful. https://t.co/zRrPkdiWn9
— Marisa Tashman Coppel (@MTCoppel) May 8, 2023
1/ Today, @BlockchainAssn submitted a comment letter to the SEC’s proposed escrow rule. With recommendations, we explain how the rule would drastically reduce investment in digital assets and why ending the rule in its current form would be illegal.
The same day, a16z general counsel Miles Jennings tweeted his letter, saying the firm “didn’t mince words” and called the SEC’s proposal a “misguided and transparent attempt to wage war on cryptocurrency.”
In its letter, the Blockchain Association provided more than a dozen separate arguments for rejecting the SEC. Among other statements, he said that The rule exceeds the authority of the SEC, would inhibit advisers from transacting with crypto exchanges and would leave investors’ assets at greater risk.
A16z detailed similar arguments in his letter, but focused more on its effects on registered investment advisers, namely, that advisers would be prevented from using cryptocurrency and the rules could violate the duty of care that the SEC requires of such firms.
On Friday, we filed a comment letter to the SEC’s safeguarding custody rule. We did not mince words.
The proposal is another misguided and transparent attempt to wage war on crypto, and if passed it will result in investor harm, market inefficiencies and poor capital formation. pic.twitter.com/Z7S01Z8SOw
— thousands jennings | milesjennings.eth (@milesjennings) May 8, 2023
On Friday, we filed a comment letter to the SEC’s custody safeguards rule. We didn’t beat around the bush. The proposal is yet another misguided and transparent attempt to wage war on cryptocurrencies, and if approved it will result in investor harm, market inefficiencies, and poor capital formation.
He called the ban on advisors being able to trade cryptocurrencies on centralized exchanges “illegal, unfeasible and dangerous.”
Although it has not yet been approved by the SEC, The February proposal would apply stricter rules to investment advisers in the custody of assets, including cryptocurrencies.
Companies will have to properly segregate assets, and custodians will have to undergo annual audits by public accountantsamong other transparency measures.
Gensler has specifically gone after crypto exchanges with the rule, and has said that some crypto exchanges that offer custodial services are not really “qualified custodians.”
The proposal was even rejected by the SEC. Commissioner Hester Pierce questioned the “viability and breadth” of the rule and its apparent orientation towards cryptocurrency and related businesses.
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