SEC Gary Gensler Discusses Risk of Crypto Investments

The U.S Securities and Exchange Commission’s (SEC) chairman Gary Gensler tweeted a Twitter spaces session where he discussed the risks of crypto investments with SEC Commissioner Caroline Crenshaw on Jan. 27.

Addressing the US military, Gensler said that cryptocurrency is a highly speculative and volatile investment tool. He went on to say that several crypto projects are non-registered securities because they do not comply with securities legislation.

The President of the Council has said on several occasions that the Commission should register numerous crypto projects because they are considered securities. However, the crypto community accused the regulator of using "enforcement tactics to regulate".

Gensler about how to track down fraudulent projects.

Gary Gensler gave pointers on how investors could spot crypto scam projects. As far as Gensler is concerned, a project may be scam if it fails to prove that it is regulatory compliant or it is unable to provide adequate information on how it works or what it does. He said other signs that a project could be a scam would be his inability to explain what it is.

Other signs highlighted by the Chief Regulatory Officer included projects with very high returns that were not sustainable. He cautioned crypto investors to think before making investments, adding that they should not be caught in the fear of missing the point (FOMO).

Superintendent Crenshow cautioned Genslers. She said:

“The bottom line is there’s increased risk when you invest in these novel, speculative, volatile investments that really lack basic protections and regulations. So, if you're thinking about investing in cryptography, consider how much of your portfolio you spend on it, and definitely not more than you can afford to lose.”

The SEC is intensifying efforts to regulate cryptography.

Following the collapse of the FTX in November 2022, the SEC intensified its efforts to ensure the cryptography industry was compliant. The financial watchdog accused FTX founder Sam Bankman-Fried of committing fraud against investors with his trading platform.

The regulator brought charges against bankrupt lender Genesis and crypto exchange Gemini over their now-defunct Earn program. The regulator indicated that the program was not registered with a commission as required under federal securities legislation. 

More recently, reports have shown that the latter has increased the scrutiny of crypto companies that intend to make public. Stablecoin issuer Circle said its public-listing efforts because it was unable to get the approval of the regulator. Grayscale has also seen its plan to convert its Trust into an ETF scuttled by the financial regulator.