Securities and Exchange Commission Chairman Gary Gensler called out cryptocurrency lending companies for offering unrealistic returns today in a interview with Yahoo Finance.
“If it’s too good to be true, then maybe it is,” Gensler said, referring to crypto deposit yields ranging from 4% to 20% that were offered by many companies and marketed to investors as safe. “There can be a lot of risks built into that.”
His comments come amid a crypto market meltdown that has sent several lending platforms into bankruptcy, including Travel digital and more recently Celsius network. Despite the suspension of customer withdrawals, Celsius 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 their website.
Both websites also offer high returns on deposits of stablecoins, which are digital assets that often seek to peg their price to the value of a fiat currency – like the US dollar – and Gensler also pointed out the risks involved. are associated with them.
Gensler claimed primary use of stablecoins is a settlement tool in Challenge, a catch-all term that describes financial tools that make it possible to borrow, lend, and trade crypto assets without third-party intermediaries. Gensler likened these digital assets to “poker chips” that need to be regulated in an ecosystem that lacks investor protections and is prone to fraud and manipulation.
“The public benefits knowing full and fair disclosure and that someone isn’t lying to them,” Gensler said. “You can decide what risks you want to take, but the person collecting the money and the person selling those financial assets to you must not be defrauding you, must give you the information you need to make your decisions.”
The SEC has rules in place to determine what constitutes an investment firm, and Gensler referenced the agency’s review of crypto lender BlockFi earlier this year, where the SEC found that the company was a non-compliant and unregistered investment company.
In February, BlockFi reached a $100 million settlement with the SEC and state regulators for offering high interest rates on cryptocurrency deposits. The company has found itself in trouble for providing a lack of public information to investors, Gensler said, adding, “There is a way forward for these loan companies.”
Exchanges, lending institutions and brokers are the three main business groups the SEC will continue to have conversations with regarding SEC compliance in the coming months, Gensler said, noting that the agency is reviewing also a variety of cryptocurrencies and stablecoins.
Reaffirming what he has said in the past, Gensler noted that the SEC will need to work with the Commodity Futures Trading Commission (CFTC) and banking regulators to cover the full regulatory scope of cryptocurrencies, noting to as an example that Bitcoin is not considered a security. by the SEC and should be regulated as a commodity under the CFTC.
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