The SEC, or the Securities and Exchange Commission, has sounded the alarm by issuing an official alert for investors in the crypto space to tread with care when using crypto asset securities. The regulator says there is growing concern over the safety of crypto assets traded on crypto exchanges.
The SEC says that many businesses operating in the crypto space, including exchanges, are not complying with regulations from the US. They say that the risk posed by this lack of regulation remains significant to investors.
The body goes further in warning that those still interested in investing in these assets after this warning should do so with money they can afford to lose completely. They say that while the industry remains extremely volatile and speculative, the platforms supporting these exchanges are not compliant with the law of consumer protection, and anything could happen.
The winter of 2022 had far-reaching effects on crypto users’ wallets, with cybercrime and fraud being exposed at very high levels in the industry. In particular, the story of FTX and its endeavors in money laundering and other securities-related crimes gives a good picture of an unregulated future.
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FTX was once valued at $32 billion, and its crash was catastrophic for the industry. In addition, the criminal charges facing its CEO and founder, Sam Bankman-Fried, tell the same story of regulation failures and their effects on users.
SEC Warns of Fragile Crypto and Unregulated Risks
The SEC also notes that crypto firms have faced major issues with their books from the crypto winter to the present. Even before the FTX collapse, companies in the sector were already becoming fragile. The failure of FTX was just a catalyst and came around the same time as the collapse of Luna and Terra.
Employment rates also suffered due to the crypto winter, with many firms resorting to job cuts to ensure the continuity of their operations. Finally, the SEC notes that investors in the space may not get the full picture because the unregulated nature of the firms means that they can withhold critical information if they wish.
According to the SEC, over 46,000 people lost a combined $1 billion in cryptocurrency fraud in the last two years, with a bigger portion losing out in 2022. Half that number say that the journey to losing their hard-earned crypto started with an advertisement or post online, according to the commission.
The SEC says that some promoters use social media to find and entice new investors using over-the-top testimonials about the returns people have made in the sector. But what the exchanges do is similar to what Bernie Madoff did: conduct a Ponzi scheme where investors’ withdrawals are taken from incoming deposits.
The Reign Of Terror
According to the SEC, fraudsters and malicious actors are everywhere in Web 3 and continue to lure more victims, leading to devastating losses. The SEC stands firm against crypto and says that the risk from the sector is too high, citing some examples of fraud cases in the last year.
Last year, exactly 12 months to date, more than $600 million was stolen from the Ronin network, a P2E chain that houses Axie Infinity. To date, only $3 million has been recovered. In the same year, in December, BitKeep users’ wallets lost over $8 million in cryptocurrency in a cyber attack that took just a few hours.