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US watchdog cautions against the risks of investing in crypto asset securities

The SEC's warning is a reminder that investing in cryptocurrencies is a high-risk venture, and investors should exercise caution when considering investing in these assets.

March 24, 2023 / 12:08 PM IST

The US regulatory agency, Securities and Exchange Commission (SEC) has issued a warning to investors to be cautious when investing in cryptocurrencies that are securities. According to the SEC, such investments are not subject to the same protections as those offered to traditional investments like stocks and bonds. The SEC warns that the market for crypto asset securities is still largely unregulated and lacks transparency, making it prone to fraud and manipulation.

The SEC's warning comes at a time when the popularity of cryptocurrencies is on the rise, and more investors are considering investing in these assets. Cryptocurrencies like Bitcoin and Ethereum have become household names, and their values have soared over the past few years. However, the SEC has noted that many of the investment opportunities in the crypto market are not legitimate, and investors should exercise caution when considering investing in them.

The SEC has also cautioned investors about the risks associated with investing in Initial Coin Offerings (ICOs), which are a common way for crypto companies to raise funds. ICOs involve the creation of a new cryptocurrency, which is sold to investors in exchange for traditional currencies like dollars or euros. The SEC warns that many ICOs may be fraudulent, and investors may end up losing their money.

The SEC's warning is not the first time that regulators have cautioned investors about the risks of investing in cryptocurrencies. In the past, other regulatory agencies like the Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC) have issued similar warnings. However, the SEC's warning is significant because it specifically focuses on crypto asset securities, which are becoming increasingly popular among investors.

In conclusion, the SEC's warning is a reminder that investing in cryptocurrencies is a high-risk venture, and investors should exercise caution when considering investing in these assets. The lack of regulation and transparency in the crypto market makes it vulnerable to fraud and manipulation, and investors should thoroughly research any investment opportunity before committing their funds.

What have been the views of other financial institutions and prominent individuals on cryptocurrencies?

US Federal Reserve: "They're highly volatile and, therefore, not useful stores of value, and they're not backed by anything," Powell said during a virtual panel discussion on digital banking hosted by the Bank for International Settlements in March 2021. Since then the chair of the federal reserve has continued to criticize cryptocurrencies on various other platforms and interactions.

European Central Bank President, Christine Lagarde: She thinks cryptocurrencies aren’t worth a dime. “My very humble assessment is that it is worth nothing,” Lagarde said of crypto in an interview with Dutch talk show “College Tour” that was aired in May 2022. “It is based on nothing,” she added. “There is no underlying asset to act as an anchor of safety.”

RBI Governor, Shaktikanta Das: While talking about the position of crypto in the Indian economy in January 2023 Das said, " crypto should be banned, given its no underlying value in the market. Just like every asset, every financial product comes with some underlying value, hence the value of crypto is totally based on the make-believe factor." At the event, Das continued to say, "Crypto is a form of gambling without any underlying value and is nothing but a 100 percent speculation world."

Berkshire Hathaway Vice Chairman Charlie Munger: He called bitcoin “disgusting and contrary to the interests of civilization in an annual general meeting of Berkshire Hathaway in May, 2021. I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out of your extra billions of billions of dollars to somebody who just invented a new financial product out of thin air,” he said. The 97-year-old Munger has long criticized bitcoin for its extreme volatility and a lack of regulation.

It is hence in the interest of investors to take an informed and considered call before investing in such highly volatile and unregulated risk assets. The cumulative views of prominent financial institutions and individuals should not be overlooked without proper consideration and consultations.

Shivam Shukla