SEC's Office of Investor Education and Advocacy has issued a warning to investors against investing in crypto asset securities due to their "exceptionally volatile and speculative" nature. The warning also highlighted that crypto exchanges may not have sufficient protections in place for investors.
The regulatory agency emphasized that securities broker-dealers, investment advisers, ATS, and exchanges must register with them, a state regulator, and/or a SRO, like FINRA. The SEC also stated that unregistered platforms offering crypto asset securities may not provide enough relevant details for investors to make informed decisions.
Moreover, the regulatory agency noted that proof-of-reserves, an auditing procedure to verify if a crypto exchange has sufficient reserves to back all user balances, may not provide any meaningful assurance.
The SEC further highlighted that no crypto asset entity is registered with it as a national securities exchange, indicating that investors engaging with crypto asset securities may not benefit from rules protecting against fraud, manipulation, front-running, wash sales, and other misconduct.
The SEC's actions are a significant point for the crypto industry, with the debate about whether crypto-assets should be considered securities or commodities at the center of this battle.
As per the statement, SEC offers the following suggestions for inverstors:
- Those offering crypto asset investments or services may not be complying with applicable law, including federal securities laws.
- Investments in crypto asset securities can be exceptionally risky, and are often volatile.
- Fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams, often leading to devastating losses.
- Having an investing plan, as well as understanding your risk tolerance and time horizon, can be critical to your investing success.
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