Coinbase, a16z, Blockchain Association Oppose SEC Crypto Custody Regulation

Coinbase, a16z and the Blockchain Association are making a move in response to the proposed SEC crypto depository rule. These companies express their concerns and propose changes that must be made before the final adoption of the regulations. This article discusses the proposed rule and the responses from the opposition.

Understanding the SEC’s Proposed Custody Rule

According to the US regulator, the proposal would require qualified custodians, such as banks or broker-dealers, to protect customer assets (including crypto-assets) by segregating and holding them in accounts. This is to protect the assets in the event of bankruptcy or other forms of insolvency of an eligible custodian. The new rules will also strengthen protection for certain securities and physical assets that cannot be maintained by a qualified custodian.

SEC Chairman Gary Gensler has expressed support for the proposal, stating that it will help prevent the mismanagement, loss or misuse of investors’ assets by advisers. The government official also highlighted that the proposed changes will ensure that investors working with advisors get the necessary protection for all their assets, including crypto assets.

The proposal would require advisers with custody of client funds to also receive a surprise audit from an independent accountant to verify the client’s assets. In addition, the proposal aims to update and improve related recordkeeping requirements for advisers and amend the Form ADV to align the reporting obligations with the proposed rule.

Coinbase, a16z, and the Blockchain Association’s response

Coinbase, a16z and the Blockchain Association have raised concerns about the proposed rule, saying it could limit innovation and hurt the industry. They argue that the rule could stifle the growth of the cryptocurrency industry by making it more difficult for new companies to enter the market.

Coinbase, a giant cryptocurrency exchange, has put forward an alternative approach to the proposed rule. Instead of requiring cryptocurrency companies to hold assets in the custody of a qualified custodian, it suggests that companies should have some level of insurance to protect their customers’ assets. The crypto exchange believes that this approach will allow more innovation while protecting customers’ assets.

In addition, Andreessen Horowitz (a16z), a Silicon Valley-based venture capital firm that invests in cryptocurrency companies, also expressed its thoughts on the proposed rule. The firm believes that it can create a barrier to the entry of new companies, making it more difficult for innovation to take place in the industry.

Finally, the Blockchain Association, a trade association for the cryptocurrency industry, suggested that the SEC should allow more flexibility in the proposed rule. The association believes that the rule should be less prescriptive and it should allow for different approaches to custody. This method will allow companies to choose the best way to secure their customers’ assets.

Final thoughts

The planned SEC cryptocurrency depository rule is an important step toward regulating the cryptocurrency industry and protecting investors. However, Coinbase, a16z and the Blockchain Association are concerned that the rule could limit innovation and hurt the industry. These companies have proposed alternative approaches to the proposed rule that would provide more flexibility and innovation while protecting customer assets.

It remains to be seen how the SEC will respond to these proposals, but it is clear that the cryptocurrency industry is not without challenges in terms of regulation at this time.

Giancarlo is an economist and researcher by profession. Before joining Blockzeit’s dynamic team, he handled several crypto projects for both the public and private sectors as a project manager for a consulting firm.