The SEC just warned investors that crypto assets are at risk of 'significant' losses after $2 trillion in market value was already erased

·2 min read
Gary Gensler SEC Chair Securities and Exchange Commission
Gary Gensler became chair of the SEC in April.Alex Wong/Getty Images
  • The SEC warned that cryptocurrencies could still spur significant losses for investors.

  • The warnings comes more than a year after the cryptocurrency market erased $2 trillion in market value.

  • "The only money you should put at risk with any speculative investment is money you can afford to lose entirely," the SEC warned.

Long after a brutal bear market kicked off in cryptocurrencies, the Securities and Exchange Commission is warning investors that cryptocurrency investors are exposed to extreme risks that could ultimately lead to significant losses.

The bulletin from the SEC on Thursday comes more than a year after the crypto market erased $2 trillion in market value, as bitcoin, ethereum, and thousands of other crypto tokens plummeted as the Federal Reserve aggressively hiked interest rates and sparked a risk-off environment among investors.

"Investments in crypto asset securities can be exceptionally volatile and speculative, and the platforms where investors buy, sell, borrow, or lend these securities may lack important protections for investors. The risk of loss for individual investors who participate in transactions involving crypto assets, including crypto asset securities, remains significant," the SEC warned.

The SEC also highlighted that not only are crypto tokens extremely speculative and risky, but many of the platforms that investors use to buy cryptocurrencies could be at risk and "may not be complying with applicable law, including federal securities law."

That risk was on full display late last year after the spectacular implosion of FTX, which resulted in billions of dollars of losses for users that held their tokens on the platform.

And the warning comes just one day after the SEC sent a Wells notice to Coinbase, indicating the largest US cryptocurrency exchange could be sued by the agency for potential securities violations related to its asset listings and staking products.

"None of the major crypto asset entities is registered with the SEC as a broker-dealer, exchange, or investment adviser — so investors may not get the protections afforded by the rules applicable to these entities," the SEC said.

The fact that no crypto exchanges are registered with the SEC means investors in crypto "may not benefit from rules that protect against fraud, manipulation, front-running, wash sales, and other misconduct," the SEC warned.

Finally, the SEC warned that fraud remains rampant in the crypto industry, as "fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams."

"The only money you should put at risk with any speculative investment is money you can afford to lose entirely," the SEC concluded.

What's clear is the government's crackdown on the crypto industry is only likely to continue following its Wells notice to Coinbase, the arrest of Do Kwon, and recent charges against Justin Sun and celebrity endorsers like Lindsay Lohan and Jake Paul.

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