Gary Gensler, chair of the U.S. Securities and Exchange Commission, has warned investors against dabbling with cryptocurrencies, likening the asset class to “the wild west”.
Speaking alongside SEC commissioner Caroline Crenshaw during a Wednesday meeting with US Army on Twitter spaces, Gensler advised the soldiers against getting caught up in the FOMO (Fear Of Missing Out) narrative that is being driven around cryptocurrencies. According to him, the fact that cryptocurrencies were largely non-compliant with basic US financial regulations, highly speculative and volatile, disqualified them as worthy investment vehicles.
“The reason some of them are not under the agency is because of non-compliance. Most of these assets are not complying with the securities laws but they should be.” Gensler said before adding, “It’s the wild west.”
He further predicted an epic failure for most crypto projects, likening them to any other business startup.
“Most of these 10 or 15 thousand tokens will fail. That’s because venture capital fails, and new startups fail. History also tells us that there is not much room for micro currencies. So, don’t get caught up in the FOMO, the fear of missing out; please don’t get caught up in that.”
On the other hand, Mrs Crenshaw advised the soldiers to be wary of the significant risks posed by cryptocurrencies, adding that it was important if they chose to invest in assets they “really” understood.
“It’s important to understand that crypto is novel and speculative. There are really reduced investor protections because most of them have not chosen to come under the SEC limits- so they are outside our traditional fundamentally important protections,” she said.
According to her, although the blockchain was transparent, the crypto sector had been infiltrated by nefarious actors aiming to perpetuate scams and hide their bad dealings.
“So, if you are considering investing in crypto give careful consideration to how much of your portfolio to devote to it and certainly no more than you can afford to lose,” she concluded.
Gensler’s comments come even as the industry faces an unprecedented number of bankruptcies by leading crypto firms. In the past two years, crypto has been a hot sector, attracting a wall of money from both retail and institutional investors. However, since November 2021, cryptocurrencies have retreated sharply, worsening the situation after the Terra Luna collapse in May last year.
Last November, the epic tumble of Sam Bankman-Fried’s crypto empire deteriorated things further, dragging the SEC right in the middle for its alleged failure to put the necessary guard rails to prevent FTX’s collapse.