SEC Issues Investor Alert For Crypto Asset Securities

The US Securities and Exchange Commission Issues a Warning to Investors of Crypto

Just some hours ago, the SEC announced an investor alert for crypto “asset securities.” The warning was issued on claims that investing in crypto is risky, especially in times like this. According to the report, cryptocurrencies can be highly volatile and speculative. Because the global economy is currently performing terribly, the SEC advises investors to only invest what they can afford to lose entirely. The SEC also stresses the fact that the crypto industry is highly unregulated. So, there are still many crypto companies and projects who offer products and services without complying with laws.

Unregistered and unregulated companies may not offer crucial information to investors, which can lead to loss of funds. There has been a growing number of scams and frauds happening in the cryptocurrency industry. Because of this fact, and the fact that companies are not informing the investors about the potential risks, the SEC felt obliged to warn investors so that they can make an informed decision whenever the time comes.

According to the report, Proof-of-Reserves do not provide enough information and assurance that the company/entity holds sufficient funds to cover their customers’ balances. For your information, Proof of Reserves is a method to transparently share the holdings of a cryptocurrency company that holds crypto assets of investors. The best example of such companies is a cryptocurrency exchange, with two of the biggest being Binance and Coinbase.

The SEC Wants To Regulate Crypto

The US Securities and Exchange Commission is trying to regulate crypto for a long time now. Nevertheless, they keep focusing on taking down illicit companies while not dedicating their focus to building a framework for crypto companies to operate within. The one thing that every crypto entity offering products and services must partake in is registration. Being an SEC-registered company means that the company provides important protections for investors. Some of these would be including rules around custody of assets, fees, standards of conduct, and minimal capital requirements. The last one, minimal capital requirements, is somewhat similar to Proof of Reserves.

So, the recent SEC warning states that investors should be aware that these protections are a must before investing in cryptocurrencies. Through this, the SEC advises investors to only invest in SEC-registered entities.