SEC Warns Crypto Investments Can Be 'Exceptionally Risky'

The U.S. Securities and Exchange Commission (SEC) has renewed its warning that investments in crypto assets can be “exceptionally risky.” The regulator stressed that crypto-related investments “continue to be replete with fraud, including bogus coin offerings, Ponzi and pyramid schemes, and outright theft where the project promoter simply disappears with investors’ money.”

SEC’s Crypto Investment Warnings

The U.S. Securities and Exchange Commission (SEC)’s Office of Investor Education and Advocacy reiterated its warnings about investing in crypto assets on social media platform X on Friday. “Investments in crypto asset securities can be exceptionally risky and are often volatile,” the authority wrote.

The SEC’s investor education office also shared a link to an investor alert it published in March titled “Exercise Caution with Crypto Asset Securities.”

The alert highlights several key points relating to investing in crypto assets. Firstly, “Those offering crypto asset investments or services may not be complying with applicable law, including federal securities laws.” Noting that no crypto asset entity is registered with the SEC as a national securities exchange, such as the New York Stock Exchange (NYSE) or the Nasdaq Stock Market, the alert cautions:

Investors in crypto asset securities may not benefit from rules that protect against fraud, manipulation, front-running, wash sales, and other misconduct when intermediaries for those products do not comply with the federal securities laws that apply to registered exchanges.

Next, the alert emphasizes that “Fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams, often leading to devastating losses.” The authority cautioned: “Crypto asset securities-related investments continue to be replete with fraud, including bogus coin offerings, Ponzi and pyramid schemes, and outright theft where the project promoter simply disappears with investors’ money.”

Another point highlighted in the alert states:

Having an investing plan, as well as understanding your risk tolerance and time horizon, can be critical to your investing success.

The debate over crypto tokens being securities or commodities continues to cast a shadow over the U.S. crypto industry. While SEC Chair Gensler asserts all crypto tokens except bitcoin (BTC) are securities, a recent court ruling on XRP suggests otherwise. Meanwhile, the SEC’s silence on ether (ETH), the second largest cryptocurrency, adds to the confusion, prompting accusations of deliberate obfuscation from lawmakers, including Congressman Tom Emmer. There is currently a bill in Congress that seeks to remove Gensler as the chairman of the SEC.

The SEC is currently evaluating 13 spot bitcoin exchange-traded fund (ETF) applications. Several analysts expect the securities watchdog to approve multiple spot bitcoin ETFs at once early next year.

What do you think about the SEC warning about the risks of investing in crypto tokens? Let us know in the comments section below.

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