SEC Warns Against Interest-Bearing Crypto Accounts — Says They’re Riskier Than Bank Deposits

The U.S. Securities and Exchange Commission (SEC) has warned investors about the “risks with accounts that pay interest on crypto-asset deposits.” The warning coincides with the first enforcement action the agency took against crypto lending platforms.

The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy and the Division of Enforcement’s Retail Strategy Task Force announced Monday that they have jointly issued an investor bulletin “to educate investors about risks with accounts that pay interest on crypto-asset deposits.”

On the same day, the SEC announced that it has charged cryptocurrency lending platform Blockfi for failing to register its crypto lending product. Blockfi has agreed to pay $100 million in penalties to settle the charges with the SEC and 32 state regulators.

The SEC explained that “an interest-bearing account for crypto asset holdings … are not as safe as bank or credit union deposits.”

The securities watchdog noted that banks and credit unions are regulated by both federal and state banking regulators. In addition, deposits at banks or federal credit unions are insured by the Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA). Similarly, securities accounts held with U.S.-registered brokers may also be insured by the Securities Investor Protection Corporation (SIPC).

The SEC warned:

Companies offering interest-bearing accounts for crypto assets do not provide investors with the same protections as do banks or credit unions, and crypto assets sent to those companies are not currently insured.

Crypto assets held in an interest-bearing account may be used to invest in various crypto products or activities, including lending programs in which the crypto assets are loaned to borrowers, the SEC described, adding that “The interest being paid to you is based on these investment activities.”

The agency then outlined the risks these activities are subject to, including volatility and liquidity in the crypto markets, the company holding your crypto assets may go bankrupt, changes in regulation, potential fraud, technical glitches, security breaches, and malware.

What do you think about the SEC warning against interest-bearing crypto accounts? Let us know in the comments section below.