Gary Gensler, the chairman of the US Securities and Exchange Commission (SEC) issued a warning to the public about ‘too good to be true’ crypto products. In addition, the US Treasury Department stated that the recent downturn in the crypto market highlights just how essential it is to develop regulatory frameworks that can come in handy for mitigating the risks associated with an investment in these digital assets.
Last week, the chair of the SEC cautioned crypto investors about the lending platforms in the industry. He talked about the lucrative products they offer to draw people to their platforms. The warning from the securities regulator came last week after renowned crypto lending platform Celsius Network announced that it was freezing withdrawals and transfers.
Gensler stated that these crypto lending platforms were operating in a way similar to banks, as they were asking people to deposit their crypto assets and get a big return on them. The chairman said that it should not be possible for any platform to offer such high returns to their clients without providing any disclosure.
He cautioned that if it sounds too good to be true, then it probably is. A number of securities regulators of different states, along with the SEC, are currently probing the decision of Celsius Network to freeze withdrawals on its platform. Reported indicated that the crypto lending platform had engaged the advisory services of Citigroup and had also gotten in touch with a law firm to assist with the financial restructuring.
Celsius is not the only platform struggling in the crypto lending space, as Babel Finance, based in Hong Kong, also suspended its withdrawal services.
Crypto Regulation Needed
In early May, the crypto market was shaken when the TerraUSD (UST) stablecoin and the Terra (LUNA) token collapsed and this resulted in troubles on numerous platforms that had been exposed to these assets, Celsius Network being one of them.
The past weekend saw Bitcoin move below the $20,000 threshold for the first time since 2020 and the crypto market has lost about $1 trillion of its market value since April. After the sell-off in the crypto space, a US Treasury department official stated that there was an urgent need for regulating crypto.
The official said last week that the Treasury Department was monitoring activities in the crypto space and said that the recent troubles highlighted that a regulatory framework is a must for managing the risks associated with it.
The official further added that they were working with their regulatory partners closely. It was further added that they would use their existing authorities to take action and offer any guidance. Moreover, Congress is also mulling over legislation that could be useful in addressing some of the other risks that are associated with this market. The United States is certainly not the only country to be concerned about this industry, as others like Japan and South Korea, have also taken action and introduced laws for governing the crypto space after the recent fiasco.