SEC crackdown on crypto "savings accounts" puts industry on notice
Markets sheriff Gary Gensler came for the crypto Wild West Tuesday, cracking down on a particularly popular kind of product, the high-yield crypto "savings" account that really isn't a savings account at all.
Driving the news: BlockFi, a crypto startup, said it will pay $100 million to settle allegations that it misled investors about its BlockFi Interest Accounts (BIA), where customers lend the company money in exchange for yield — up to around 8% in some cases.
- It's the largest ever penalty against a crypto firm and latest sign that the Gensler-run SEC is serious about regulating this world.
Why it matters: The settlement puts the industry — and its customers — on notice that these kinds of accounts will be regulated as securities.
- About 600,000 investors had crypto in BIA accounts for a total of $10.4 billion, according to the agency's filing.
State of play: Other startups, like Celsius and Gemini, offer similar products (and are also reportedly under SEC scrutiny).
- These products are marketed as though they were savings accounts, where you deposit cash and earn interest.
- "Put your crypto to work," says the website advertising Gemini's lending product, called Earn. "You can receive 8.05% APY."
- With crypto booming, I've heard from investors who love these products and use them like high-yield savings accounts.
Yes, but: They're really more like risky high-yield bonds, essentially short-term loans customers make to crypto companies.
- If there were a run on assets, BlockFi couldn't necessarily keep paying interest or even return customer's money, Axios' Hope King and Ryan Lawler explained.
Go deeper: SEC ratchets up crypto crackdown