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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.”

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.

“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.

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