The United States Securities and Exchange Commission has often talked about the purported “dangers” of crypto-assets while highlighting the need to strongly regulate the industry. It wasn’t until the FTX blow-up that the regulator stepped up its aggression.

In yet another instance stigmatizing the asset class, the securities watchdog has released a bulletin urging investors to exercise caution when dealing with cryptocurrencies.

SEC’s “Investor Alert”

The SEC’s Office of Investor Education and Advocacy cautioned investors against considering an investment involving crypto asset securities citing its “exceptionally volatile and speculative” nature. The post also pointed out that the crypto exchanges “may lack important protections for investors.”

The SEC explained that the law requires parties, including securities broker-dealers, investment advisers, alternative trading systems (ATS), and exchanges, to register with the regulatory agency, a state regulator, and/or a self-regulatory organization (SRO), such as FINRA. It added that platforms offering lending or staking services in crypto assets may be subject to federal securities laws.

It stated that unregistered platforms offering crypto asset securities may not provide relevant details required by investors to make informed decisions. The SEC also attempted to touch on the concept of proof-of-reserves – an auditing procedure allowing users to verify that a crypto exchange has sufficient reserves backing all user balances.

Proof-of-reserve reports have gained significant traction after the FTX collapse to address the transparency concerns surrounding centralized crypto exchanges.

But the SEC maintained these types of services may not provide any meaningful assurance and verify that these entities hold adequate assets to back their users’ balances.

“Crypto asset entities might use these in lieu of audited financial statements in order to obscure and confuse customers about the safety of their assets. In addition, a proof of reserves is not as rigorous, or as comprehensive, as a fina