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March 27, 2023

SEC Cautions Investors on Crypto Securities

The crypto bros have been having a bit of a moment in recent weeks, as bitcoin rallied while bank stocks burned. Some crypto-evangelists have contended that recent events have “exposed the fractional reserve banking system’s core limitations and strengthened the case for investing in bitcoin”.  You folks do what you want, but I think it’s worth comparing the relative outcomes for SVB & FTX depositors before pulling your life’s savings out of the federally insured banking system and making a bet that Charlie Munger isn’t right about everyone’s favorite digital tulip.

Anyway, the SEC made it pretty clear last week that the crypto bros aren’t making much headway with it. In addition to Coinbase’s disclosure that it had received a Wells notice from the agency, the SEC’s Office of Investor Education & Advocacy issued an investor bulletin on Thursday warning about the risks of crypto investments.  The bulletin was lengthy, but the SEC started it off with this “TLDR” summary:

TLDR: The SEC’s Office of Investor Education and Advocacy continues to urge investors to be cautious if considering an investment involving crypto asset securities. Investments in crypto asset securities can be exceptionally volatile and speculative, and the platforms where investors buy, sell, borrow, or lend these securities may lack important protections for investors. The risk of loss for individual investors who participate in transactions involving crypto assets, including crypto asset securities, remains significant. The only money you should put at risk with any speculative investment is money you can afford to lose entirely.

Among other things, the bulletin points out that those offering crypto asset investments or services may not be complying with applicable law, including federal securities laws, and that the marketplace is full of fraudsters peddling scams to retail investors.

John Jenkins