SEC Chief Advises Caution to Crypto Investors as Market Weakness Extends

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In Brief
  • SEC's Gary Gensler recently stated that investors should be cautious of "too good to be true" crypto returns.

  • Gensler's comments come on the backdrop of a tumbling crypto market this week, as Bitcoin hangs to the $21,000 level.

  • Added volatility by Celsius' withdrawal halt after the Terra debacle has raised further concerns for the market.

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U.S. Securities and Exchange Commission (SEC) Gary Gensler recently stated that investors should be cautious of “too good to be true” crypto returns offered by lending platforms and digital products.

Gensler was quoted saying during an industry event, “We’ve seen again that lending platforms are operating a little like banks. They’re saying to investors ‘Give us your crypto. We’ll give you a big return 7% or 4.5% return.’ How does somebody offer (such large percentage of returns) in the market today and not give a lot of disclosure?”

“I caution the public. If it seems too good to be true, it just may well be too good to be true,” the SEC chief added.

Crypto market continues downward trend

Gensler’s comments come on the backdrop of a tumbling crypto market this week, as Bitcoin hangs to the $21,000 level on Wednesday. Notably, the king coin has slid by over 30% in the past week, recording a new 18-month low.

As the sell-off deepens, Mostafa Al-Mashita, executive vice president of Canadian crypto firm SDM, believes that the virtual asset market has been caught up in the broader “risk-off environment.”

That said, crypto funds saw outflows of a whopping $102 million last week, as per digital asset manager CoinShares due to expectations of more conservative monetary policies.

“What we are experiencing is the impact of a worsening macroeconomic trend, in which inflation is rising because of supply-chain issues,” Al-Mashita told CNBC.

As per CoinGecko, the cumulative global cryptocurrency market cap today has contracted to $952 billion. Considering, this week’s market weakness was spiraled by crypto lender Celsius Network’s decision to suspend all customer withdrawals.

If large crypto players collapse…

Marcus Sotiriou, an analyst at U.K.-based digital asset broker GlobalBlock, told CNBC, “If Celsius collapses, a liquid cascade could occur where whales who have leveraged bets on Bitcoin and Ethereum become liquidated,” 

Meanwhile, reports around crypto hedge fund Three Arrows Capital’s liquidation speculation have further soured the market. 

Therefore, the added volatility after the Terra debacle has raised concerns about a deeper market collapse. Mikkel Morch, executive director of crypto hedge fund ARK36 opined, “In the medium term, everyone is really bracing for more downside,”

Morch further added, “Bear markets have a way of exposing previously hidden weaknesses and overleveraged projects so it is possible that we see events like last month’s unwinding of the Terra ecosystem repeat.”

That said, stablecoins by Tron and Waves have also lost their dollar peg recently, which has triggered more uncertainty in the crypto market after the Terra-led mayhem.

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Shraddha is an India-based journalist who worked in business and financial news before diving into the crypto space. As an investment enthusiast, she has also has a keen interest in understanding crypto from a personal finance standpoint.

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