SEC Cautions That Crypto Investments Pose ‘Exceptional Risks’

The U.S. Securities and Exchange Commission (SEC) has reiterated its caution about the “exceptional risks” associated with investments in crypto assets. The regulatory body emphasized that crypto-related investments remain susceptible to fraud, encompassing fraudulent coin offerings, Ponzi and pyramid schemes, and cases of outright theft where project promoters vanish with investors’ funds.

SEC Issues Warnings on Crypto Investments

The U.S. Securities and Exchange Commission (SEC)’s Office of Investor Education and Advocacy reiterated its cautions regarding investments in crypto assets, emphasizing their exceptional risk and volatility, in a post on social media platform X(formerly knows as Twitter) on Friday.

Securities and Exchange Commission 2

The SEC’s investor education office provided a link to an investor alert published in March titled “Exercise Caution with Crypto Asset Securities.” The alert underscores essential considerations for investing in crypto assets, emphasizing that entities offering such investments or services may not be in compliance with relevant laws, including federal securities laws. It notes that no crypto asset entity is registered with the SEC as a national securities exchange, akin to the New York Stock Exchange (NYSE) or the Nasdaq Stock Market.

“Investors involved in crypto asset securities might not enjoy the protections afforded by rules designed to prevent fraud, manipulation, front-running, wash sales, and other misconduct when intermediaries for those products fail to adhere to the federal securities laws applicable to registered exchanges.”

Furthermore, the alert underscores that “Scammers persist in capitalizing on the growing popularity of crypto assets to entice retail investors into scams, frequently resulting in significant losses.” The regulatory body warned, “Investments related to crypto asset securities remain susceptible to fraud, encompassing deceptive coin offerings, Ponzi and pyramid schemes, and instances of outright theft where project promoters vanish with investors’ funds.”

The alert also emphasizes:

“Developing an investment plan and comprehending your risk tolerance and time horizon can be crucial for achieving success in your investments”.

The ongoing dispute regarding the classification of crypto tokens as securities or commodities continues to linger over the U.S. cryptocurrency industry. Despite SEC Chair Gensler’s stance that all crypto tokens, excluding bitcoin (BTC), are securities, a recent XRP court ruling suggests a different perspective. The SEC’s lack of clarity on ether (ETH), the second-largest cryptocurrency, has fueled confusion, leading to allegations of intentional ambiguity from lawmakers, including Congressman Tom Emmer. A bill in Congress aims to remove Gensler as the SEC chairman.

Simultaneously, the SEC is reviewing 13 applications for spot bitcoin exchange-traded funds (ETFs). Analysts anticipate the regulatory body approving multiple spot bitcoin ETFs early next year.

 

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