SEC boss issues warning to ALL crypto products offering returns
Crypto exchanges that are promising returns to investors will not avoid the hard-hand of the SEC, says chair Gary Gensler.
Gensler says that investors in the crypto space are entitled to the same protection against fraud and manipulation as those who use other types of financial products, including mutual funds or insurance policies.
“This crypto space is now certainly of a size that without those investor protections of banking, insurance[and] securities laws and market oversight, I do think somebody is going to get hurt,” he said. “A lot of people are likely to get hurt.”
People need to keep in mind everybody and their mom is making a "crypto." There WILL be a bust and MANY of these coins and blockchain businesses WILL fail. Don't get hurt by our generations "Dot Com Bubble." Research before you make any decisions!— Jake (@jake_ramirez) April 21, 2021
The SEC’s stance is informed by the “Howey Test”, a Supreme Court ruling that determines whether a transaction qualifies as an “investment contract”.
An investment will fall under the remit of federal securities law if “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party”.
Amid talk of ‘Uptober’ and heightened optimism over the possibility of a bullish surge in Q4, questions remain over the efficacy of tokens and investors’ expectations.
For example, Chris Dixon makes the case that there is often an inverse relationship between network effects and financial utility via token rewards, which may be contrary to investors’ understanding.
“Over time, as the network effect and native utility grows, the token incentives taper off and eventually go to zero, and the world is left with a new, scaled network,” Dixon says.
The basic idea is: early on during the bootstrapping phase when network effects haven’t kicked in, provide users with financial utility via token rewards to make up for the lack of native utility. pic.twitter.com/RG6mPbRbrt— Chris Dixon (@cdixon) October 1, 2021
“There are lots of intricacies about how to design the token schedule and keep out spammers and scammers, which I won’t go into here but is a very interesting topic,” he added.
With all the various intricacies and the 6,500+ cryptocurrencies available on exchanges, it is little wonder the SEC has not gotten involved sooner.
The WRAP #Crypto Index— Wrapped Asset Project (@wraptokens) September 15, 2021
There are 6500+ active cryptos being traded across 400+ exchanges. But we believe that only 20 cryptos are worth your time.
WRAP Crypto Index is a market cap-based index of the 20 best cryptos selected as per the R.O.H.A.S. Crypto Valuation method. pic.twitter.com/KUxmrAOgcY