SEC warns of risks to profitable crypto accounts
The United States Securities and Exchange Commission (SEC) has warned investors of “risks with accounts paying interest on crypto-asset deposits.” This warning coincides with the agency’s first enforcement action against crypto lending platforms.
The SEC’s Office of Investor Education and Advocacy and the Enforcement Division’s Retail Strategy Task Force announced Monday that they have jointly released a newsletter “to educate investors about the risk of accounts paying interest on cryptoasset deposits.” “.
The SEC states that “an account that earns interest for holding crypto assets … is not as safe as a deposit with a bank or credit union.”
The agency notes that banks and credit unions are regulated by both federal and state bank regulators. In addition, deposits with banks or federal credit unions are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA). Securities accounts of US-registered brokers can also be insured by the Securities Investor Protection Corporation (SIPC).
The SEC warns:
“Companies that offer profitable crypto accounts cannot offer investors the same protections as banks or credit unions, and crypto assets sent to these companies are not currently insured.”
The SEC describes that crypto assets held in interest-bearing accounts can be used to invest in various crypto products or activities, including lending programs where crypto asset funds are lent to borrowers, the SEC describes adding that “interest will be paid to you based on those investments.”
The agency then outlined the risks of these activities, including volatility and liquidity in the crypto market, possible bankruptcy of crypto asset holding companies, regulatory changes, etc. Fraud, potential fraud, technical glitches, security breaches, and malware.
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