SEC Not Buying “Proof of Reserves” By Crypto Exchanges? Chief Warns Crypto Companies

The year 2022 has been a roller coaster ride for the cryptocurrency sector. Beginning with the collapse of the Terra ecosystem in May to the recent debacle of the FTX crypto exchange, the market has gone through it all. These catastrophic events have further motivated the U.S. SEC to take a stricter stance on crypto-related firms and crypto assets as a whole.

Gensler’s Jibe On Proof of Reserves

Gensler also objected to proof-of-reserves reports, which some cryptocurrency businesses create to demonstrate that they have sufficient cash on hand to support consumer deposits. According to Gensler, the strategy, which has been adopted by significant cryptocurrency companies including the crypto giant Binance, falls short of the disclosures required to safeguard investors.

There are some in this field that have talked about ways to give customers confidence that their crypto is really there. They should do that by coming into compliance,

Furthermore, the SEC chairman’s comments suggested that the regulator’s attention will continue to be focused on the financial reporting practices of these crypto businesses, instead of a mere PoR report posted on their website.

Also Read: Binance’s Mysterious Trades Worth $22 Trillion Found In Latest Analysis

SEC’s Crypto Crackdown

In a recently telecasted interview, the chairman of the Securities and Exchange Commission (SEC), Gary Gensler, stated that the agency’s patience was thinning out on digital-asset exchanges and other crypto firms that sidestepped its restrictions.

Read More: SEC Sets Eyes On Audit Firms Working With Crypto Companies

On Thursday, the United States’ financial watchdog, sued two more prominent crypto executives for their alleged roles in the failure of the FTX exchange. The SEC announced that it had settled fraud charges with Gary Wang, a co-founder of the crypto exchange, and Caroline Ellison, who ran the FTX’s trading arm, Alameda Research. The Hong Kong-based trading firm allegedly used billions in FTX customer deposits to fund its risky bets.

SEC Chair Gary Gensler was quoted as saying,

The runway is getting shorter. The casinos in this Wild West [implying to crypto companies] are non-compliant intermediaries,

Gensler Warns Crypto Investors

Despite his refusal to name the companies under scrutiny or speculate on the direction the FTX investigation may take, Gensler issued a number of industry-wide warnings. The SEC chairman has claimed that most tokens are basically merely unregistered securities trading on the blockchain. He asserts that they must adhere to the strict trading and investment guidelines set forth by the organization in order to remain compliant.

“Many of those thousands of cryptocurrencies listed on exchanges and websites that track digital asset markets are thinly traded cryptocurrencies”, Gensler said. He further went on to claim that, insiders on these projects can “sell the public on an idea while they’re potentially fraudulently pumping up the price”.