Why the SEC is investigating these crypto lending firms Why the SEC is investigating these crypto lending firms
The SEC is investigating some crypto lending firms over their operations and high interest rates.
2 min read
Updated: Feb. 1, 2022 at 10:31 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Top crypto lending firms, Gemini Trust Co, Celsius Network, and Voyager Digital Limited, are under investigation by the US Securities and Exchange Commission (SEC).
High-interest rates attract regulators attention
Sources close to the matter revealed that this isn’t a specific investigation into these companies. But a general probe into firms offering interest on virtual deposits.
With growing calls for crypto regulations, the SEC has decided to review whether products offered by these firms should be registered as securities or not.
Crypto firms have become the choice location for several people looking to save as they tend to offer higher interest rates than the traditional banks while also lending these digital assets to other investors.
But the SEC and some states, including Alabama, Texas, New Jersey, and Kentucky, have expressed their concerns about this practice. The primary concern surrounds investor protection. Regulators are worried that investors might not fully know the potential risks involved in the operations of these crypto firms.
Investigations would cause further FUD in the crypto market
The news of the inquiry into the crypto lenders further complicates a troubled industry. With the crypto market in dip, information like this would only cause FUD which isn’t good for the industry. However, the SEC hasn’t accused these companies of any wrongdoing. This means nothing may come from the investigation.
These concerns come from the fact that while the Federal Deposit Insurance Corporation (FDIC) insures bank savings accounts, crypto deposits have no such insurance.
Concerns about crypto lending services remain high
This won’t be the first time the SEC will take action against crypto lending. Last year, Coinbase had to cancel its plans to release a lending product after the SEC threatened to sue the company.
Crypto lending services aren’t new to regulatory crackdowns. In 2021, the New York State Office of the Attorney General issued a cease and desist order against BlockFi and Celsius. It accused them of wrongdoing which led to the closure of their operations in the state.
Celsius, initially based in the UK, plans to move its headquarters to the US amidst regulatory uncertainties. But it doesn’t look like regulators on the other side of the Atlantic are pleased either. Regulators in Texas and New Jersey have also issued cease and desist orders to the crypto firm.
Several state regulators have also threatened to ban crypto lending firms from operating within their jurisdiction. However, while confirming the investigation, the spokespersons of the three firms remain optimistic and consider this a routine operation by the regulators.
Posted In: Regulation
Author 
Oluwapelumi Adejumo
Oluwapelumi values Bitcoin's potential. He imparts insights on a range of topics like DeFi, hacks, mining and culture, underlining transformative power.
