SEC warns investors about volatile crypto

The US Securities and Exchange Commission (SEC) was clearly shocked by the collapse of FTX in November 2022 and has been a lot more aggressive since then. Since the unexpected collapse of the stock market, with which the SEC missed one of the largest fraud cases in history, the financial watchdog of the United States has been quite upset. This time warns it investors for investments in specific cryptocurrencies.

Crypto investors beware!

The SEC’s Investor Education Center warns against investing in crypto assets that may qualify as a security in the United States. The financial watchdog calls the crypto it targets “exceptionally volatile and speculative” in nature.

In the letter, the SEC explains that the law normally requires parties to register themselves with the SEC. It also adds that platforms that offer staking may also fall under these rules and are therefore not complying with them now.

With this, it seems to refer, among other things, to Coinbase, to which it sent a so-called Wells notice earlier this week. A Wells notice means the SEC is currently considering filing a lawsuit against the exchange platform as it potentially believes it is not adhering to the rules.

Insufficient details

Furthermore, the SEC believes that parties such as Kraken and Coinbase may not share enough information with investors. For example, the watchdog states that the so-called Proof-of-Reserves revolution, which we are currently seeing within the industry, contains insufficient details. “Entities trading crypto can fool and mislead investors in this way. Proof-of-Reserves is not the same as a full financial audit that is normally appropriate,” the SEC said.

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In addition, the SEC says that at this time no party has registered as a national stock exchange. In the case of the Kraken strike program, for example, that would have been relevant, because the SEC believes that this program qualifies as an effect under US financial law.

We generally speak of a financial law effect when it comes to a financial instrument to which investors can attach a certain profit expectation based on the work of the issuer (in this case Kraken). The SEC’s actions and rulings of the last period seem to indicate that a crucial period is upon us for part of the crypto industry. Bitcoin (BTC) seems to be completely unaffected for the time being.

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