Investing

Is Crypto Coming to an End? This $100 Million Settlement Will Impact Crypto Forever

The SEC’s Response

“This is the first case of its kind with respect to crypto lending platforms,” SEC Chair Gary Gensler said. “Today’s settlement makes clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Company Act of 1940. It further demonstrates the Commission’s willingness to work with crypto platforms to determine how they can come into compliance with those laws. I’d like to thank and commend our remarkable SEC staff and state regulators for their efforts and collaboration on this settlement.”

“Crypto lending platforms offering securities like BlockFi’s BIAs should take immediate notice of today’s resolution and come into compliance with the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Adherence to our registration and disclosure requirements is critical to providing investors with the information and transparency they need to make well-informed investment decisions in the crypto asset space.”

Although the government says its settlement with BlockFi is “the first case of its kind with respect to crypto lending platforms,” this isn’t its first run-in with a crypto company.

Coinbase pulled the plug on its Lend program in 2021, which is called a “high-yield alternative to traditional savings accounts.” Because it was a security, the SEC allegedly threatened legal action. Coinbase said at the time it was seeking “regulatory clarity for the crypto industry.” Since then, it released a product that lets non-US customers earn interest on their crypto.

Nevertheless, BlockFi will have to dish out $100 million charges. Payments will be made to the SEC, with $50 million being paid directly, and the remainder going to 32 states. And, BlockFi also agrees to stop selling BlockFI Interest Accounts (BIAs) to new customers.

How is BlockFi Responding?

You’d think that a company that was just imposed the biggest penalty ever would have a grim demeanor. That hasn’t exactly happened so far.

“From the day we started BlockFi, we have always known that strong engagement with regulators would be critical for the adoption of financial services powered by cryptocurrencies,” said Zac Prince, CEO, and Founder of BlockFi. “Today’s milestone is yet another example of our pioneering efforts in securing regulatory clarity for the broader industry and our clients, just as we did for our first product – the crypto-backed loan.”

“We intend for BlockFi Yield to be a new, SEC-registered crypto interest-bearing security, which will allow clients to earn interest on their crypto assets.”

Now, this is unprecedented. Why? The SEC does not regulate interest products at this time. Because, you know, it’s all decentralized lending. This is one of the reasons why they are able to offer such insane interest rates.

We almost expected that BlockFi would release a registered securities product, the BlockFi Yield. It appears, then, that Block Fi has to take the lead and I have to assume that other crypto exchanges will follow.

Now, here’s where I have a problem with this. The company said that they “intend” to file. Why’s that an issue? Well, for months BlockFi customers have been receiving emails about this new product. So, they knew something was up. And, in my opinion, they should have something else to offer right now.

But, there’s a little more to that.

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