SEC Chair Warns Of Crypto Risks As Prices Drop

U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has issued a new warning on the risks of investing in cryptocurrencies as prices for the digital coins and tokens continue to fall.

During an appearance at a conference in Washington, D.C., Gensler called cryptocurrencies a “highly speculative asset class” and reiterated the lack of investor protections.

“The investment public is not getting disclosures…When you make other asset purchases, we have this basic bargain, you the investing public can make your choices about what risks you take,” Gensler said. “There's supposed to be full and fair disclosure, and people aren't supposed to lie to you. Right now, many of these entrepreneurs come up with an idea … and they want to raise money from you. That puts it inside of the securities laws.”

Gensler warned that investors should not think they own their cryptocurrency tokens, noting that using a digital wallet on a platform constitutes a transfer of ownership to the platform.

“If the platform goes down, guess what? You just have a counter-party relationship with the platform,” Gensler said. “Get in line at bankruptcy court.”

The SEC chair argued that the digital asset class is not that decentralized, pointing to a handful of major trading and lending venues that handle most of the cryptocurrency asset volume.

Gensler again called for basic investor protections, including market integrity, barring front running customers, and anti-manipulation and fraud. He also said crypto platforms are often trading and making markets against investors.

“When [the platforms] take your custody, when they take those tokens, they can use them, they can trade them. It's not like when you trade in the equity markets," Gensler said. "They're actually making markets against you."

Gensler’s strong comments about crypto’s risks come after stablecoin TerraUSD and sister token Luna crashed to zero last week, with the carnage spilling over into other cryptocurrencies.

Bitcoin (BTC), the largest cryptocurrency, is currently trading around $30,000 U.S., less than half the all-time high of $68,000 U.S. it was at last November.

Gensler has been a strong advocate of regulating cryptocurrencies and has repeatedly tried to assert authority over the asset class by applying the definition of securities to digital coins and tokens.