SEC Issues Warning Against Investing in Crypto Asset Securities

The United States Securities and Exchange Commission has often spoken about the alleged “dangers” of crypto assets while highlighting the need to heavily regulate the industry. It wasn’t until the FTX explosion that the regulator intensified its aggression.

In yet another case stigmatizing the asset class, the securities watchdog has published a bulletin urging investors to exercise caution when dealing with cryptocurrencies.

SEC “Investor Alert”

The SEC’s Office of Investor Education and Advocacy warned investors not to consider an investment involving crypto asset securities citing their “exceptionally volatile and speculative” nature. He mail he also noted that crypto exchanges “may lack important investor protections.”

The SEC explained that the law requires parties, including broker-dealers, investment advisers, alternative trading systems (ATS), and exchanges, to register with the regulatory agency, a state regulator, and/or a self-regulatory organization (SRO). . , like FINRA. He added that platforms offering lending or participating services in crypto assets may be subject to federal securities laws.

He stated that unregistered platforms offering crypto asset securities may not provide the relevant details required by investors to make informed decisions. The SEC also tried to touch on the concept of proof of reserves, an audit procedure that allows users to verify that a crypto exchange has enough reserves to support all user balances.

Proof-of-reserve reports have gained significant traction after the FTX crash to address transparency concerns surrounding centralized crypto exchanges.

But the SEC held that these types of services may not provide any meaningful collateral and verify that these entities have adequate assets to support their users’ balances.

“Crypto asset entities could use these instead of audited financial statements to hide and confuse customers about the security of their assets. In addition, a test of reserves is not as rigorous or complete as a financial statement audit and may not provide any level of assurance.”

The SEC further stated that, thus far, no crypto asset entity is registered as a national stock exchange, nor does any existing national stock exchange currently trade crypto asset securities. In doing so, he indicated that investors who engage with crypto asset securities may not benefit from rules that protect against fraud, manipulation, early foreclosure, fictitious sales, and other misconduct.

The SEC’s actions represent a key turning point for cryptocurrencies, and at the heart of this battle is the debate over whether crypto assets should be considered securities or commodities.

Eyes on Coinbase

The SEC is currently at odds with one of the most prominent crypto exchanges: Coinbase. The San Francisco-based platform received Wells Notice this week, setting in motion a potential lawsuit, following a series of investigations by the regulatory agency led by Gary Gensler.

In response, Coinbase co-founder and CEO Brian Armstrong said the SEC reviewed his business in detail and approved the platform to go public two years ago, while maintaining they were “correct in law” and ” confident in the facts.”