SEC Renews Caution on Crypto Investments, Warns of Rising Frauds

The U.S. Securities and Exchange Commission (SEC) has reiterated its warning on the "exceptional risk" associated with crypto investments, emphasizing the prevalent fraud in the sector. The SEC's Office of Investor Education and Advocacy underscored the volatility of crypto assets and highlighted potential risks, including fraud, pyramid schemes, and theft by project promoters. The regulator shared a link to its March investor alert titled "Exercise Caution with Crypto Asset Securities" on social media platform X, advising investors to be wary of non-compliance with applicable laws.

The alert points out that entities offering crypto asset investments may not adhere to federal securities laws, lacking registration with the SEC as national securities exchanges like NYSE or Nasdaq. Consequently, investors may not enjoy the protective rules against fraud, manipulation, and misconduct. The SEC also cautioned against fraudsters exploiting crypto's popularity to lure retail investors into scams.

Additionally, the alert encourages investors to have a clear investment plan, understand their risk tolerance, and consider their time horizon for optimal success. The ongoing debate over whether crypto tokens are securities or commodities remains a point of contention in the U.S. crypto industry. While SEC Chair Gensler categorizes most crypto tokens as securities, a recent XRP court ruling suggests a different perspective. The SEC's silence on ether (ETH) further complicates matters, leading to accusations of deliberate ambiguity from lawmakers.

Congress is currently considering a bill seeking to remove Gensler as the SEC chairman. Meanwhile, the SEC is evaluating 13 spot bitcoin exchange-traded fund (ETF) applications, with expectations for multiple approvals early next year.