Reading 3 min Views 3 Published Updated
According to recently filed letters, the US securities regulator’s proposal to tighten cryptocurrency custody rules has been met with resistance from at least two industry supporters.
On May 8 — the deadline for comment on the proposal — the cryptocurrency industry advocacy group Blockchain Association filed a letter with the Securities and Exchange Commission (SEC) criticizing its proposal to change the custody rules.
Three days earlier, a similar letter was sent by venture fund Web3 Andreessen Horowitz (a16z).
Marisa Tashman Koppel, the association’s political lawyer, tweeted on May 8 that the rule would “drastically reduce investment in digital assets” and – in its current form – the rule is “illegal”.
1/Today, @BlockchainAssn filed a comment letter to the SEC’s custody proposed 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
On the same day, a16z General Counsel Miles Jennings tweeted his letter saying the firm was “not shy about words” and called the proposal “a misguided and transparent attempt to wage war on cryptocurrencies.”
In its letter, the Blockchain Association presented more than a dozen separate arguments to reject the SEC proposal. Other allegations include that the rule exceeds the authority of the SEC, prohibits advisors from trading with cryptocurrency exchanges, and puts investors’ assets at greater risk.
A16z detailed similar arguments in his letter, but focused more on its impact on registered investment advisors, namely that advisors would be prohibited from using cryptocurrencies and the rules could violate the duty of care 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
miles jennings | milesjennings.eth (@milesjennings) May 8, 2023
He called banning advisors from trading cryptocurrencies on centralized exchanges “illegal, unworkable and dangerous.”
RELATED: SEC Defense Will Cost Ripple $200M, Says CEO Brad Garlinghouse
The February proposal, which has yet to be approved by the SEC, would impose stricter rules on investment advisors when holding assets, including cryptocurrencies.
Firms will have to segregate assets properly, and custodians will have to conduct annual audits by accountants, among a host of other transparency measures.
Gensler specifically targeted cryptocurrency exchanges with the rule and said that some cryptocurrency trading platforms that offer custody services are not actual “qualified custodians.”
The proposal even met with resistance within the SEC. Commissioner Hester Pierce questioned the rule’s “workability and breadth” and its apparent focus on crypto and crypto-related companies.