SEC Chairman Gary Gensler Says There Are Three Ways To Determine If A Crypto Project Is A Scam

How hard is it to spot a cryptocurrency scam? According to SEC Chairman Gary Gensler, it’s not as hard as it sounds.

Gensler and SEC Commissioner Caroline Crenshaw spoke with the US military on Twitter Spaces earlier this month to discuss the dangers of investing in cryptocurrencies and how to tell if a project is a scam.

“There are certain red flags that you can look for beyond being too good to be true,” says Gensler.

In general, Gensler put forward three clear signs that something could be a fraud. (2) the inability to demonstrate that the project complies with the regulations; (3) The project cannot easily explain what it is.

Gensler also said high-return offers are a red flag, warning against overly complex projects and projects that rush investors to make decisions, pray for FOMO, or fear missing out. said to do.

The SEC chair also reiterated his belief that many cryptocurrencies could be unregistered securities.

“many [cryptocurrencies] We don’t comply with securities laws, but we should,” he said. “It’s the Old West here. I think you really have to wonder if there’s a ‘there’ there.” “

Gensler presented a grim outlook on the future of the cryptocurrency industry, telling the audience that the majority of the 15,000-plus cryptocurrencies currently on the market will ultimately fail.

“It is important to understand that cryptocurrencies are novel. It is speculative,” said Commissioner Crenshaw. “Investor protection is really, really diminished because most of them have not chosen to come under the authority of the SEC.”

Pointing to the history of fraud in cryptocurrencies, Crenshaw said there is a need for greater transparency in the industry.

“They are known for their fraud and claim to be transparent,” said Crenshaw. “What is on the blockchain is transparent, but the rest is not.”

Crenshaw didn’t call FTX by name, but the specter of Sam Bankman-Fried’s failed cryptocurrency exchange continues to haunt the cryptocurrency market. Once a dominant player in the cryptocurrency industry, FTX imploded in November following a bank run on the exchange. The liquidity crisis forced the company to admit it didn’t hold his 1:1 reserve of client assets and eventually filed for bankruptcy.

Bankman-Fried was subsequently arrested and charged with eight financial crimes, including wire fraud and conspiracy to launder money, in connection with the collapse of the exchange. At this point, there are still billions of missing client assets, and millions of clients still don’t know if those funds will be seen again.

“The bottom line is that investing in these novel, speculative and volatile investments that really lack basic protections and regulations puts you at increased risk,” Commissioner Crenshaw said on Twitter Spaces. . “So if you are considering investing in cryptocurrencies, consider how much of your portfolio you want to invest in cryptocurrencies. Definitely not more than you can afford to lose.”