Per Bloomberg, the US SEC probes three crypto-yield companies over proper registration issues.
Why The Probe?
While none of the firms have been alleged of any misconduct, multiple sources reveal that the SEC is investigating whether crypto yield firms’ offerings should be considered securities. The operations of crypto lending firms are similar to the way banks operate; they offer interest on their clients’ crypto deposits.
Then, institutional traders can request loans from these crypto lending companies for their trading operations. Their process differs from banks because these crypto lending firms offer better interest rates for users willing to loan their crypto to institutional traders.
Also, lenders prefer crypto lending firms to banks because filling a KYC form isn’t compulsory with crypto lending platforms. Instead, these platforms utilize smart contract technology to allow users to perform their financial transactions automatedly and anonymously.
While most state financial regulators have alleged that crypto lending companies’ offerings violate securities laws, the federal financial regulator is yet to make such claims. Before conducting these probes, the SEC had served these crypto lending firms several warning notices. Some states such as Kentucky have not only accused these crypto firms of violating security laws; they also threaten to stop their business operations.
Cooperating With The SEC
All the firms being investigated by the SEC are in full cooperation even though the SEC has yet to confirm this series of probes. A spokesperson for Gemini stated that “the SEC requested our contribution and two other companies regarding an investigation over crypto yield offerings, and we are in full cooperation with the agency’s request.”
A top-level executive with Celsius also stated that “while we won’t divulge any details regarding the SEC investigation, we will continue to comply with all regulators here and abroad regarding any compliance or clarification issues.”
It is not new that the SEC makes claims of securities violation against crypto lending firms; it made the same claim against Coinbase when the exchange was about to launch its crypto lending platform. Coinbase stated that it was not the first firm to offer yield products while making its case with the SEC. However, the SEC’s claim was severe that the exchange had to hold the planned launch permanently.
Crypto Market In Multi-Month Lows
The crypto market has been in colossal decline, falling to multi-month lows, especially in the last seven days. The overall crypto market evaluation is now down by over $1 tr. Some financial analysts opine that institutional investors’ rising interest in crypto has created a semblance between the crypto industry and the traditional finance market.
Hence, it isn’t a surprise that the consequences of the Fed’s meeting regarding inflation and labor shortages are affecting the crypto and the traditional market. As the Fed chair’s announcement indicated that the fed might soon start raising interest rates to prevent an astronomical rise in inflation rates, share prices dipped while treasury yields rose.