The SEC has proposed some big changes to the Custody Rule for assets to better incorporate it with digital assets and crypto in particular. But the changes will come up short for advisors looking for clarity and might push parts of the industry to an assets under advisement (AUA) model, Matthew Kolesky writes.
Plus: Megan DeMatteo has everything you need to know about crypto philanthropy: what donors and organizations should get ahead of as they think about using crypto assets for charitable causes. You might know endowments, but do you know Endaoment?
In February, the SEC proposed dramatic changes to a bedrock law governing the custody of assets. The original rule, Custody Rule 206(4)-2, was adopted by the SEC in 1962 which mainly focused on physical custody of client assets – stock and bond certificates – saying they were to be kept in a bank, segregated from advisor assets, and held in a “reasonably safe” place.
In 2003, the SEC amended the rule to keep up with technological advances in capital markets infrastructure, which have made virtually every aspect of the advisory industry more efficient. The modernized rule, which better defined custody and essentially removed any assumption of paper assets, has been serving advisors and clients well, allowing trusted, qualified custodians to provide custody and many other services to the industry.
Digital assets, most notably cryptocurrency, came just a few years later. The seeds of the digital asset industry were planted with the bitcoin whitepaper nearly 15 years ago as a novel way to send value natively across the internet without the need for a trusted third party. Five years after that, the Ethereum whitepaper was published. In the years since, an entirely new asset class has emerged, and advisors are now being asked to guide investors engaged with it.
The proposed rule would expand the definition of assets in the advisor/client relationship to specifically include digital and crypto assets (from page 28 of the proposed rule): “…the proposed rule’s definition of assets would include investments such as all crypto assets, even in instances where such assets are neither funds nor securities.”
Most advisors are already applying their fiduciary obligation to the entire relationship with their clients, so at first glance this doesn’t seem like a big step. However, the new rule also narrows the scope of what an advisor could use as a “qualified custodian” of digital assets.
Nonprofits are continually tasked with finding new ways to make philanthropy cool – if, at times, a little kitschy. From mail-in sweepstakes to 24-hour walkathons, grabbing and sustaining the attention of donors is a heavy lift.
Cryptocurrency donations offer a novel approach to philanthropy. According to some leaders in the Web3 space, nonprofits won’t have to work very hard to convince crypto investors to donate; they are already eager.
“Donating crypto is a win/win,” said Alicia Maule, digital engagement director at The Innocence Project and co-founder and CEO of Givepact, a crypto fundraising platform for nonprofits. “People who have accumulated crypto want to give to their favorite organizations. They don’t have the cash to give, but they have crypto.”
100-odd crypto companies fleeing U.S. regulatory uncertainty are “welcome” in France and could be registered in the country as the just-agreed MiCA EU crypto legislation beds in, Financial Markets Authority officials said.
Today’s debates over non-monetary uses of Bitcoin like ordinals and BRC-20 tokens echoes the battle between Big and Small Blockers between 2015 and 2017.
A U.S. debt default could catapult the cryptocurrency onto the international stage.
Congrats on making it this far! On occasion, we’ll give our loyal Crypto for Advisors readers the opportunity to claim DESK, our social token, which is a mechanism for returning the value of engagement to the users who create it.
Disclaimer: The information contained in this newsletter, and any information linked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. You should seek additional information regarding the merits and risks of investing in any cryptocurrency or digital assets.
