Washington — US regulatory pressure on the sector, which was already defensive in other crises this year, as liquidity issues on the crypto lending platform Celsius Network prevented 1.7 million customers from redeeming their assets. Will increase.
The industry has fought scrutiny of the May collapse of the cryptocurrency TerraUSD, which has caused concerns about digital assets being used to circumvent sanctions on Russia and the plunge in the market, causing systemic risk concerns. I did.
New Jersey-based Celsius’ move to freeze its withdrawal this week due to “extreme” market conditions has highlighted another issue with the crypto sector: weak investor protection.
Securities regulators in Alabama, Kentucky, New Jersey, Texas, and Washington have begun investigating the decision in Celsius, the executive director of the Texas Securities Commission told Reuters Thursday.
Cryptographic executives say recent issues show that U.S. regulators are too late to provide the clarity needed to protect everyday Americans, but they are changing rapidly. I’m hoping to do it.
Perriand Bowling, Founder and Chief Executive Officer of the Digital Commerce Chamber of Commerce, said: “We hope that recent events will accelerate efforts to provide a clearer policy for the industry and to provide certainty to those who invest in digital assets.”
Recent turmoil in the crypto market has highlighted the “urgent need” for a regulatory framework to mitigate the risk of digital assets, a US Treasury official said Thursday.
Cryptographic lenders collect crypto deposits from retail customers and reinvest them. With double-digit revenues touted, such products have attracted tens of billions of dollars in assets. However, Celsius was unable to respond to the redemption due to a surge in investment amid the slump in the crypto market.
Unlike traditional financial companies, crypto lenders operate in the gray area of regulation. That is, deposits are not guaranteed by the government. The risks Celsius discloses on its website. Like many peers, Celsius is not registered with the Securities and Exchange Commission (SEC). That is, there were few rules regarding risk management, capital, and disclosure.
As a result, customers have little idea of how they are investing their assets, and it is unclear whether they will regain their assets.
Todd Phillips, director of financial regulation at the Center for American Progress, a Washington think tank, said:
Celsius CEO Alex Masinsky tweeted on Wednesday that the company is focusing on customer concerns.
Bank regulators believe that Congress is needed to monitor crypto companies, but securities regulators have begun cracking down on lending of goods in the past year or so.
Indeed, Celsius is on their radar. In September, regulators in Kentucky, New Jersey, and Texas attacked Celsius with a cease and desist order, arguing that interest-bearing goods should be registered as securities.
Meanwhile, the SEC last year blocked Coinbase Global Inc’s plans to launch a loan product and sued the loan platform BitConnect for fraud.
In February, the SEC and state regulators fined BlockFi $ 100 million for failing to register cryptocurrency lending products. The SEC said the transaction needs to provide a roadmap for other crypto lenders to register their products, but it’s unclear how many companies are ready to follow.
The Kentucky, New Jersey, and Texas SEC and regulatory agencies did not immediately respond to requests for comment on Thursday. On Tuesday, SEC chair Gary Gensler warned that some cryptocurrency products would return me as “too good and not true.”
Registering cryptocurrency lending products does not eliminate all risks to investors, but it will increase the transparency of such products and ensure some risk management management, he said. The house said.
However, many companies want to avoid that burden and hold regulatory agencies responsible for taking enforcement action. Still, lawyers said the SEC is likely to increase such efforts.
Howard Fisher, a partner at law firm Moses & Singer, said:
Some industry executives welcome more regulations. This allows the best companies to take the lead. In February, rating agency Fitch said disclosures and increased requirements would be “credit positive” for the lending sector.
“Investors want to know that their assets are safe,” said Mike Belshe, CEO of BitGo, a digital asset trust company. “We will see the selection of healthy companies that manage risk well.”
(Written by Michelle Price, additional report by Andrea Sharal of Washington, edited by Nick Zieminsky)