The Real Impact of the BlockFi Settlement
For starters, BlockFi says that customers based outside of the United States will not be affected by the SEC settlement. U.S users, like me, will still earn interest on cryptos they already have in their interest accounts. But, they won’t be able to make additional deposits. And, those accounts will also be turned into BlockFi Yield accounts once the SEC approves this
What I found interesting is that when you now go to BlockFi’s website, there’s no boasting about how much money you can make on your Stablecoin. Now, the site is focusing on a crypto rewards card.
So, when I login into my BlockFi, everything appears to be on the up-and-up. But, I’m really curious. Has BlockFi done something illegal?
“BlockFi has not been very transparent. I think that is part of the reason why [the] SEC went after them,” said PitchBook fintech analyst Robert Le. “These are new products, so no one really knows what the real risks of these products look like.” Users don’t yet know whether or not they can lose their bitcoin and Ethereum if they lend them out or if the product is 100% risk-free.
Additionally, regulators are reportedly investigating Celsius, Gemini, and Voyager Digital’s digital lending practices.
“Other providers could either register their products with the SEC, or they can try to fight it out in court,” Le said. His prediction is that Celsius, which is mainly about crypto lending, will try to prove these aren’t securities so they don’t have to be registered with the SEC.
And, considering that the company made false and misleading statements regarding the level of risk in the loan portfolio and lending, investors have every right to be concerned with the risk-level is working with BlockFi.
Is Crypto Coming to an End?
I hate to break the news to all the crypto haters out there. But, as long as there is demand, this is not the end of crypto. And, if you want to know, the demand is high.
At the same time, there will be ripple effects.
Well, it puts pressure on its peers to follow suit by playing nice with the SEC (due to its responsibilities). BlockFi would have a huge edge over its competitors if it got the SEC to approve its high-yield crypto loan plan. As far as BlockFi is concerned, this settlement is just a minor setback. The situation is kind of like DraftKings and FanDuel’s settlement with the New York Attorney General last year, which helped them become industry leaders.
But, there could be more serious consequences too.
In an interview with TechCrunch, Max Dilendorf said that the SEC’s action against BlockFi essentially “wiped out” the crypto lending business model.
What if a crypto company wanted to keep selling interest-bearing products? It must complete an S-1 registration statement. And, that would be just like a publicly-traded company would. In order to buy into interest-bearing products, investors must be accredited. That is, unless they qualify for specific exemptions (and win), he said.
Smaller players in the space could get crushed by the new rules, regulations, and associated costs.
“BlockFi can probably afford to go forward with [offering registered securities] even though the outcome is not certain, because it’s a $3 billion company,” Dilendorf said. “What about a smaller
DeFi protocol? They are going to get wiped out if they become targets of similar enforcement action.”
The worst-case scenario.
There remains a possibility that the SEC won’t approve the products BlockFi, Celsius, Nexo, and Eco want to offer. It’s what SEC Commissioner Hester Peirce wants to happen.
According to a statement on the SEC website, she wasn’t on board with the settlement and thinks BlockFi’s S-1 process will take “longer than it would for more traditional filings.” In addition, BlockFi will have to “leap through another regulatory hoop,” the Investment Company Act. Additionally, she considers 60 days-or 90 days if BlockFi receives an extension-to be “extremely ambitious.”
The bottom line?
I don’t think you need to panic and withdrawal everything from your BlockFi account if you have one. But, I wouldn’t add any more to it. And, I would probably explore alternatives like Celsius or diversify my crypto accounts. This way it will be easy to transfer just in case.
Originally published at ValueWalk.
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