Cryptocurrency industry supporters have raised concerns about a proposed regulation by the U.S. Securities and Exchange Commission (SEC) that would tighten laws surrounding crypto custody. The Blockchain Association, an advocacy group, and Web3 venture capital firm Andreessen Horowitz (a16z) have both written letters to the regulator, arguing that the proposal would have far-reaching implications for the industry.
The Blockchain Association sent its letter to the SEC on May 8, 2023, stating that the rule exceeded the SEC’s power. The Association argued that the regulation would prevent advisers from doing business with cryptocurrency exchanges, putting investors’ assets in greater danger, among other issues.
A16z wrote their letter three days prior to Blockchain Association’s and focused on how the proposal would affect registered investment advisers. The Venture Firm claimed that these restrictions could potentially breach the duty of care that the SEC expects from such businesses. Miles Jennings, head of decentralization at A16z, referred to the proposal as “an idiotic and obvious attempt” to wage war against cryptocurrency.
U.S. SEC Chair Gary Gensler claimed that some crypto trading platforms offering custody services are not legitimately certified custodians. As a result, the proposed regulation would require businesses to properly separate their assets, with custodians needing to submit to annual audits by public accountants. The proposal would directly target cryptocurrency exchanges and impose stricter regulations on financial advisers who have custody of assets, including cryptocurrency.
The U.S. SEC’s proposed regulation, put forward in February 2023, has not yet been authorized by the SEC and has faced opposition even from within the organization. Commissioner Hester Pierce has raised concerns about the regulation’s viability, scope, and apparent targeting of cryptocurrencies and companies associated with them.
Industry insiders worry that the proposed regulation would harm the cryptocurrency industry’s progress and investor confidence, preventing growth in this emerging market. Concerns expressed by the Blockchain Association and A16z suggest that these groups view the proposed regulation as too broad, unnecessary, and harmful to the industry.
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