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SEC Gary Gensler Discusses Risk of Crypto Investments

2 mins
Updated by Paolo Besabella
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In Brief

  • SEC chairman Gary Gensler said crypto is a highly speculative and volatile investment instrument.
  • Gensler gave several hints on how crypto scam projects can be spotted.
  • The financial watchdog has recently increased its scrutiny over the crypto space.
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The U.S. Securities and Exchange Commission’s (SEC) chairman Gary Gensler tweeted a Twitter spaces session where he discussed the risks of crypto investments with SEC Commissioner Caroline Crenshaw on Jan. 27.

Speaking to the U.S. army, Gensler said crypto is a highly speculative and volatile investment instrument. He continued that several crypto projects are unregistered securities as they fail to comply with securities law.

The SEC chairman has repeatedly stated that the commission should register many crypto projects because they qualify as securities. However, the crypto community has accused the regulator of employing a “regulation by enforcement’ tactics.

Gensler on How to Spot Scam Projects

Gary Gensler gave pointers on how investors could spot crypto scam projects. According to Gensler, a project may be scam if it fails to prove that it is regulatory compliant or it is unable to provide adequate information on how it works or what it does. He added that other signs that a project might be scam would be its inability to explain what it is about.

Other signs highlighted by the regulatory chief included projects offering very high and unsustainable returns. He advised crypto investors to think before making investments, adding that they shouldn’t be caught in the fear of missing out (FOMO).

Commissioner Crenshow rehashed Genslers warning. She said:

“The bottom line is there’s increased risk when you invest in these novel, speculative, volatile investments that really lack basic protections and regulations. So if you’re considering investing in crypto, consider how much of your portfolio you devote to it, and certainly no more than you can afford to lose.”

SEC Steps up Crypto Regulation Efforts

Following FTX’s collapse in November 2022, the SEC has stepped up its efforts to bring the crypto industry into compliance. The financial watchdog charged FTX’s founder Sam Bankman-Fried for defrauding investors with his trading platform.

The regulator brought charges against bankrupt lender Genesis and crypto exchange Gemini over their now-defunct Earn program. According to the regulator, the program was not registered withe commission as required by federal securities laws. 

More recently, reports revealed that the SEC has increased scrutiny of crypto firms planning to go public. Stablecoin issuer Circle said its public-listing efforts failed because it was unable to get the approval of the regulator. Grayscale has also seen its plan to convert its Bitcoin Trust into an ETF scuttled by the financial regulator.

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Oluwapelumi Adejumo
Oluwapelumi believes Bitcoin and blockchain technology have the potential to change the world for the better. He is an avid reader and began writing about crypto in 2020.
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