Crypto platforms such as Coinbase and other entities dealing with digital currencies should include the tokens they hold for customers as assets and liabilities on their own balance sheets and educate the public about the potential risks of investments, according to updated SEC guidelines.
The directive surfaced as the federal government pondered increased regulation of cryptocurrencies and pushed for more transparency about how platforms operate to protect consumers.
Investors are pouring money into Bitcoin and other digital assets at a rapid pace, pushing the global crypto market cap above $2 trillion.
The SEC guidelines instructed cryptocurrency platforms, banks and other financial institutions to register the tokens they hold on behalf of customers as assets and to include their obligation to protect the reserves as liabilities from June.
Under previous guidelines, client holdings were excluded from platforms’ balance sheets – a practice that mirrored the way listed brokerages operate. The SEC said “uncertainties” specific to the largely unregulated crypto space – such as how assets would be managed in the event of fraud, theft or bankruptcy – required special attention.
“The technological mechanisms supporting how crypto-assets are issued, held or transferred, as well as legal uncertainties regarding the holding of crypto-assets for others, create significant increased risks…including an increased risk of financial loss,” the SEC said in a statement. .
The change will have a major effect on the financial reporting and accounting practices of major exchange-listed platforms.
For example, Coinbase reported $21.3 billion in assets and liabilities at the end of 2021, despite holding $278 billion worth of cryptocurrencies and other currencies on behalf of its customers, reported the Wall Street Journal.
Lawmakers and federal officials have expressed growing concern that crypto investments pose a risk to the public given the lack of clear guidelines or oversight.
“Currently, we simply don’t have enough investor protection in funding, issuing, trading, or lending crypto,” SEC Chairman Gary Gensler said in prepared remarks before the committee. Senate of Banks last September. “Frankly right now it’s more like the Old West or the old ‘buyer beware’ world that existed before the securities laws were enacted.”
Hackers present another risk to crypto investors. Earlier this week, hackers stole $615 million in crypto from the Ronin blockchain project in one of the biggest thefts on record.
With post wires