With the cryptocurrency market lacking oversight, transparency, consumer protection, insurance, licensing, and net worth requirements, investors have no chance from the start. Former lawyer said SEC John Reed Stark.
Having worked as a lawyer in the SEC Enforcement Division for 18 years, below are some objective and independent thoughts on crypto’s failures. I’ve no stake in the crypto game, and am a frequent SEC critic, so please don’t shoot the messenger.
Crypto fails as an “investment”…
— John Reed Stark (@JohnReedStark) April 29, 2023
The specialist has worked for 18 years in the department of law enforcement practice of the department.
Citing various studies, he called his findings “objective and independent”. The expert added that he considers himself a critic of the Commission and is not interested in the “crypto game”.
According to Reed Stark, for the aforementioned reasons, the digital asset market is rife with market manipulation, insider trading, and fraud.
In particular, the thesis about the status of cryptocurrency as a store of value does not stand up to criticism due to the lack of utility and intrinsic value. The asset has no storage value, the price is based solely on greater fool theories.
The situation is similar with positioning as a “panacea for those who do not have access to banks.” According to the expert, this is just another example of “predatory inclusiveness” and affection scams to deceive the dispossessed and dissatisfied.
Cryptocurrency is not a safe-haven asset because there is no government oversight or protection that provides any semblance of security.
Reed Stark urged not to perceive the recent collapses of financial institutions as a problem Tradfi in the US as a whole and not fall for the bait of “crypto promoters”. The latter use “perverted” logic, stating: “See, I said you can’t trust banks, buy cryptocurrency next time and you will never have to trust centralized organizations again.”
The expert called this a classic fraud tactic that he often encountered while working at the SEC.
“In the rare cases of bank failures, there are statutory measures to protect and assist depositors, such as insurance and federal ownership and takeovers. The US government is acting quickly and responsibly. But when a crypto platform crashes (FTX, BlockFi, Voyager, Celsius), there is no protection, the client’s access to assets is suddenly blocked or frozen”, he explained.
According to the specialist, bitcoin exchanges may look like traditional brokerage applications for ordinary users, but they lack the oversight and protection of investors built into traditional financial services.
The expert referred to Coinbase’s filing with the SEC, in which the platform said that the cryptocurrency stored on behalf of users may not actually belong to the latter if “it comes to a fight” – “because […] can be considered as the property of the bankruptcy estate, […] and the clients themselves become unsecured creditors on a common basis.”
Reed Stark noted that in the event of bankruptcy of traditional brokers, customer accounts are segregated and will not fall into the debt settlement process. In addition, they are protected by the Securities Investor Protection Corporation for amounts up to $500,000.
“Fraud is not just an ordinary phenomenon in the crypto industry. It is a modus operandi and an inherent criminal characteristic deeply ingrained in the DNA of this ecosystem for all eternity. What is the result? Victims become executioners, ‘contagion’ spreads, titans become fugitives, informants and defendants – and the fiat disappears.” the expert concluded.
Recall that in March, Senator Cynthia Lummis and Congressman Patrick McHenry drew attention to the increased risk of losing client funds as a result of the collapse of cryptocustodian during the implementation of SAB 121 from the SEC.
Earlier, the head of departments, Gary Gensler, warned crypto exchanges about the inconsistency with the status of custodians.
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