The SEC is stepping up its fight against cryptocurrencies by proposing tough rules that could prevent investment advisors from owning such assets.

  • Cryptocurrency crackdowns by the SEC have extended to fund managers and could prevent them from holding such assets on behalf of clients.
  • The proposed rule changes would require crypto to be registered with government-certified banks or brokers.
  • This can make holding cryptocurrencies difficult as the asset may not meet traditional compliance measures.

The Securities and Exchange Commission (SEC) has stepped up its crackdown on the crypto sector by proposing a rule change that could prevent investment advisors from holding cryptocurrencies on behalf of their clients.

Wednesday’s proposal, voted 4-1 by regulators, would expand the types of assets that fund managers must hold using qualified custodians, including state-certified banks and brokerages.

This can make it difficult for asset managers, including hedge funds and pension funds, to hold crypto without violating certain compliance measures.

Custody rules are designed to protect clients’ assets in the event of bankruptcy or other types of insolvency.

In a statement alongside the proposal, SEC Chairman Gary Gensler said, “Through this extended custody rule, investors working with advisors will receive the time-tested protection they deserve for all of their assets, including cryptoassets, in line with what Congress envisioned. ”

The SEC has argued that since the last amendment to the Dodd-Frank Act in 2009, advances in technology have put investors at risk of losses from new sources, likely hinting at cryptocurrencies.

The increased focus on crypto in recent years has prompted firms like Coinbase to become qualified custodians through Coinbase Custody Trust Co. In the first nine months of 2022, Coinbase earned $68.4 million from custody services, up from $86.6 million a year earlier.

This decision may have implications for his own guardianship proposal.

IN Wednesday tweet In response to this statement, Coinbase General Counsel Paul Grewal said that “Coinbase Custody Trust Co. today is a qualified custodian and tomorrow will be a qualified custodian.”

“While we commend the SEC for following proper public rulemaking procedures, today’s proposal is just a proposal,” Grewal said.

For now, the rule change could also be due to Gensler’s deeper battle with the industry to determine whether most crypto tokens and offerings are securities and therefore subject to registration rules.

Several crypto companies, including Gemini, Genesis, and Paxos, have faced lawsuits from the SEC for offering these alleged “unregistered securities.”

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