US SEC says cryptocurrencies should be treated as a liability

The US Securities and Exchange Commission (SEC) has urged cryptocurrency companies to disclose potential risks from digital asset investments. The regulatory body has also warned those investing in digital assets to be cautious.

SEC wants crypto firms to be accountable

The SEC has issued guidelines to the organizations operating in the crypto sector. The SEC has explained how these companies ought to operate to ensure that investors are not exposed to risks they are not aware of.

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In the report, the SEC said,

The technological mechanisms supporting how crypto assets are issued, held or transferred, as well as legal uncertainties regarding holding crypto assets for others, create significant increased risks… including an increased risk of financial loss.

The SEC also said there lacked a definite standard for which digital assets could be protected from losses. Therefore, they should be classified as a liability on the balance sheet. Companies should also disclose the cryptocurrencies they are holding.

The SEC has also reminded new investors that the crypto industry carries a high amount of risk. Besides the financial loss caused by price volatility, the SEC pointed to the cybersecurity risks associated with the sector. Cryptocurrency exchanges have been victims of hacks. In January, Crypto.com, one of the leading exchanges, was the victim of a $34M hack.

Last week, the Ronin network suffered from the largest decentralized finance (DeFi) hack, where over $600 million worth of crypto was stolen. Another $600M hack happened on the Poly network last week.

SEC’s tough regulations on crypto

The SEC has been tough on regulating the crypto sector. The chair of the SEC, Gary Gensler, had earlier opined that the crypto sector should be regulated by federal agencies. He noted that this would give investors access to better protection when dealing with cryptocurrencies.

After US president Joe Biden signed the executive order on cryptocurrencies last month, Gensler said that he wanted to work with colleagues to protect customers and create a safe environment for cryptocurrency activities in the US. This aligned with the sentiments of the White House regarding the crypto space.