The US military hosted a live audio session with Twitter Spaces yesterday, and the chairman of the Securities and Exchange Commission (SEC) was also in attendance. During the Twitter Spaces, SEC Chairman Gary Gensler discussed, among other things, how to recognize a scam within the crypto industry. According to Gensler, recognizing these types of scams may not be as difficult as you think.
What are the risks of investing in crypto?
Listen to my discussion with Commissioner Caroline Crenshaw and @USArmy ⬇️ pic.twitter.com/df90CkxwjN
— Gary Gensler (@GaryGensler) January 27, 2023
Crypto scams
Among other things, Gensler took an old wisdom from the attic: “if something is too good to be true, it often is.” According to the chairman of the powerful supervisory body, there are a few things you can pay attention to. If those risk factors are present, then it is probably too good to be true.
In general, it is three things that make a crypto project a scam. The first thing Gensler cites is that there isn’t enough documentation or clarity about the project. What will the team behind the project do and how do they want to approach and achieve that?
Secondly, it is important that a project complies with existing laws and regulations. Can’t find anything about that? Then according to Gensler that is a bad signal. Finally, a project must be able to explain exactly what it does. If that is not possible, then the question is whether there is actually something valuable.
XRP lawsuit
Also, the chairman of the SEC reiterated his assessment that most cryptocurrencies qualify as securities, or effects. This is the issue that plays a part in the lawsuit between the SEC and Ripple. According to the SEC, Ripple has made an illegal securities issue by marketing XRP.
You can best compare this to a company that puts shares on the market without following the rules. In the context of consumer protection, this is not allowed just like that. “Most cryptocurrencies do not comply with securities laws when they should,” said Gensler.
The only cryptocurrency that, according to Gensler, in any case does not qualify as a security is bitcoin (BTC). The SEC has yet to make a clear judgment on the rest, which could have a very negative effect on the industry.