The U.S. Securities and Exchange Commission (SEC) has regularly shown a slightly apprehensive attitude towards cryptocurrencies. Recently, SEC has cautioned investors and users about the risks with “interest-bearing crypto accounts”.
SEC’s Office of Investor Education and Advocacy along with the division of Enforcement’s Retail Strategy Task Force have jointly issued an investor bulletin. Moreover, the aim of this bulletin is “to educate investors about risks with accounts paying interest on crypto-asset deposits.”
They’ve explained that “an interest-bearing account for crypto-asset holdings are not as safe as bank or credit union deposits”. Moreover, the security watchdog notes that federal and state banking regulators regulate banks and credit unions. Also, Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insure deposits at banks or federal credit unions.
On the other hand, there is no such protection for interest-bearing crypto accounts. The SEC warned:
“Companies offering interest-bearing accounts for crypto-assets do not provide investors with the same protections as do banks or credit unions, and crypto assets sent to those companies are not currently insured.“
In addition to that, they said that crypto assets held in an interest-bearing account pave way for usage in various crypto products and activities. Some of these activities include lending programs, where borrowers can take a loan for these crypto-assets.
In conclusion, the agency briefed the risks of these activities. Some of them they mentioned are volatility and liquidity in crypto markets, the risk of bankruptcy, regulatory changes, and potential frauds. Moreover, there are many other risks besides the abovementioned such as technical glitches, security breaches, etcetera.