SEC Chair alerts of ‘Too Good to Be True’ Crypto Products

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Key Takeaways

  • The United States Securities and Exchange Commission, or SEC, chief, Gary Gensler, renewed his plea for investor protection in securities offered by crypto businesses.
  • Gensler warned individuals about potentially “too good to be true” investment returns.
  • According to Gensler, the majority of tokens being traded on the crypto market are regulated by the SEC and must comply with the same disclosure standards as securities.

Recently, SEC Chairman Gary Gensler issued a warning to investors about crypto financing systems that use products that appear too good to be true.

Gensler spoke digitally at the Robert F. Kennedy Human Rights Compass Investor Conference, saying the SEC would focus on cryptocurrency projects and exchanges, warning individuals about potentially promising investment returns.

Meanwhile, the US Treasury Department claims that the latest crypto market volatility highlights the critical need for regulatory regimes that reduce the vulnerability posed by digital assets.

Bitcoin had previously hit a new 18-month low after major crypto lender Celsius Network froze withdrawal effects and the possibility of sharp U.S. interest rate increases shook the volatile asset class.

The warning came after cryptocurrency lender Celsius Network froze withdrawals early last week.

“We’ve seen lending platforms act a little like banks once again.” They’re telling investors, ‘Give us your cryptocurrency.’ We’ll give you a large return (7 percent or 4.5 percent),” According to Gensler. “How does someone offer (such a large percentage of returns) in today’s market without providing a lot of disclosure?”

Gensler went on to say “I warn the general public. If something appears to be too good to be true, it most likely is.”

Celsius, based in New Jersey, offers customers who deposit cryptocurrencies on its platform interest-bearing products worth approximately $11.8 billion in assets. It then lends out cryptocurrencies in order to earn a profit.

Liquidity issues at cryptocurrency lending platform Celsius Network, which have rendered its 1.7 million customers unable to redeem their assets, will increase regulatory pressure on the sector, which was already on the defensive due to other crises this year.

Securities regulators in Alabama, Kentucky, New Jersey, Texas, and Washington have launched investigations into the Celsius decision, according to the Texas State Securities Board’s director of enforcement, who spoke to Reuters on Thursday.

The early May breakdown of cryptocurrency terra (LUNA) and stablecoin TerraUSD (UST), as well as issues at crypto lending platforms, shook the crypto market.

The spotlight has returned to cryptocurrency markets this week, amid increased volatility that has long alarmed regulators.

Having followed the crypto market sell-off, a US Treasury Department official last week emphasized the critical need for cryptocurrency regulation. 

Nothing that the Treasury Department is “monitoring activity in the cryptocurrency market,” according to the official:

We believe that the recent turmoil only emphasizes the critical need for regulatory frameworks that mitigate the risks posed by digital assets.

Gensler has consistently claimed that, in his opinion, typical crypto trading platforms with dozens of tokens may well fit the definition of “securities” and therefore should be traded and controlled as such.

Recent issues, according to crypto executives, show that US regulators have been too slow to provide the clarity required to protect everyday Americans, but they think it will change quickly.

“We are now seeing the consequences of regulators failing to provide clarity,” said Perianne Boring, the Chamber of Digital Commerce’s founder and CEO.

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Aadrika Sharma
Aadrika Sharma

I enjoy writing and try to learn new things every passing day!

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