On the current policy trend, it is evident that the U.S. Securities and Exchange Commission (SEC) is gradually tightening its regulations on cryptocurrency institutions, and the cryptocurrency industry is under unprecedented pressure. Among them, the SEC's higher requirements for cryptocurrency custody may further squeeze the living space of cryptocurrency platforms.
The cryptocurrency custody rules stem from the proposed "Proposed Custody Rule for Investment Advisers" passed by the SEC in February, aiming to raise the threshold for investment advisers' improper use and abuse of user assets. The proposal expands the scope of custody requirements to include cryptocurrency assets, which could potentially narrow the pool of qualified cryptocurrency custodians. The insistence on asset-neutral custody methods may make cryptocurrency investors more susceptible to theft or fraud, rather than less.
At the same time, SEC Chairman Gary Gensler announced on the SEC's official website that he has joined the Investor Advisory Committee. The committee recently submitted a new rule for the protection of investment advisers. According to the provisions of the Congress in 2010, the rule expands the custody rules to cover all assets of investors, not just their funds or securities. The proposed rule will also require written agreements between advisers and custodians, enhance requirements for foreign institutions to serve as custodians, and explicitly extend the protection rules to full power of attorney transactions. Gary Gensler emphasized in the article that based on the general operation of cryptocurrency trading and lending platforms, cryptocurrency exchanges will no longer be able to rely on the role of investment advisers to become qualified custodians in the future. To become a qualified custodian under the new rules, platforms need to ensure that all assets are properly segregated, undergo annual audits by public accountants, and implement other transparency measures.
Cryptocurrency custody rules have been consistently opposed by many industry institutions. Among them, the advocacy group Blockchain Association and a16z's general counsel, Miles Jennings, have separately submitted letters to the SEC, criticizing its proposed modifications to the regulatory rules. In addition, Patrick McHenry, Chairman of the House Financial Services Committee, and French Hill, Chairman of the Task Force on Financial Technology and Innovation, have sent a comment letter to the U.S. Securities and Exchange Commission (SEC), requesting the withdrawal of its proposed cryptocurrency custody rules.
Overall, the cryptocurrency custody rules are highly unfriendly to cryptocurrency institutions. Additionally, the long-pending application for a Bitcoin spot ETF has not been approved by the SEC, which has been criticized by industry practitioners for a long time. Compliance in the cryptocurrency industry is a mainstream trend in the present and future, but compared to traditional industries, the updating and transparency of regulatory rules are pressing matters.
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