Securities and Exchange Commission Chairman Gary Gensler denounced cryptocurrency lending firms for unrealistic returns in an interview with Yahoo Finance today.
“If it’s too good to be true, then maybe it is,” Gensler said, citing returns on crypto deposits ranging from 4% to 20%, which have been offered by numerous companies and marketed as safe to investors. “There can be a lot of risk in that.”
His comments come amid a market crash in crypto that has sent several lending platforms into bankruptcy, including Voyager Digital and most recently Celsius Network. Despite the pause in customer withdrawals, Celsius’s website says customers can earn annual returns of up to 18% on deposits for certain cryptocurrencies, and Voyager is touting 12% rewards on deposits for a relatively unknown token called KAVA, according to its website.
Both sites also offer high yields on deposits from stablecoins, which are digital assets that often try to peg their price to the value of a fiat currency — like the U.S. dollar — and Gensler also pointed out the associated associated risks.
Gensler claimed that stablecoins are primarily used as a settlement tool in DeFi, a collective term that describes financial instruments that allow for the borrowing, lending, and trading of crypto assets without third-party intermediaries. Gensler likened these digital assets to “poker chips,” which, as part of an ecosystem with no protections for investors, must be regulated and are vulnerable to fraud and manipulation.
“The public benefits from knowing that they are being fully and fairly disclosed and that no one is lying to them,” Gensler said. “You can decide what risks you want to take, but the person raising the money and the person selling you these financial assets should not cheat you, they should give you the information to make your decisions.”
The SEC has rules for determining what constitutes an investment company, and Gensler cited crypto lender BlockFi’s review earlier this year, where the SEC found the company was a noncompliant, unregistered investment company.
In February, BlockFi scored a $100 million settlement with the SEC and state regulators for offering high interest rates on cryptocurrency deposits. The company ran into trouble for providing investors with a lack of public information, Gensler said, adding, “There is a way forward for these lending companies.”
Exchanges, credit institutions, and broker-dealers are the three main groups of companies the SEC will continue to hold SEC compliance talks with in the coming months, Gensler explained, noting that the agency is also investigating a variety of cryptocurrencies and cryptocurrencies stablecoins.
Gensler reiterated what he had said in the past, noting that the SEC needs to work with the Commodity Futures Trading Commission (CFTC) and banking regulators to cover the full regulatory scope of cryptocurrencies, pointing out as an example that Bitcoin is not considered a security by the SEC and would need to be regulated as a commodity under the CFTC.
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