The chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, recently said that it is not as difficult to identify a crypto scam as it may sound.
Earlier this month, he spoke during a Twitter Space to the US Army with SEC Commissioner Caroline Crenshaw.
They talked about the dangers associated with crypto investment and how to identify a scam project.
Identifying a scam
The SEC chair said that when something sounds too good to be true, it really turns out that way. But, he added that there were more red flags people could look for other than it is too good to be true.
Gensler outlined three prominent signs in general that could be used for identifying a scam. These start with a lack of clear documentation from the crypto project about how it works or plans on delivering its goals.
The second sign that Gensler highlighted was the inability of the crypto project to provide that it is regulatory compliant and the third is its inability to explain exactly what it is.
According to Gensler, any offer promising high returns should be considered a red flag and he also warned against excessively complicated crypto projects.
He also added that projects that push investors to make a decision, or those that use the FOMO card i.e. fear of missing out should also be avoided.
The SEC boss also reiterated his belief once more about most cryptocurrencies being unregistered securities.
He stated that most cryptocurrencies were not compliant with the securities law, but they should be doing so. He also used the term ‘Wild West’ to refer to the crypto space, which has already been used before.
Gensler also talked about the crypto industry’s future and said that it has a very grim outlook. He told the audience that most cryptocurrencies would eventually fail.
He predicted that almost 15,000 cryptocurrencies would go down. Commissioner Crenshaw stated that it was necessary for people to understand that crypto is speculative and novel.
She said that they did not offer much investor protection because most of them have opted to not become regulatory compliant.
Crenshaw also highlighted crypto’s scam history and said that the industry needs to have more transparency.
She added that even though they claim to be transparent, they have become well-known for their scams. She clarified that everything on the blockchain was transparent, but the rest of it lacks transparency.
Even though she did not specifically mention FTX, the collapse of Sam Bankman-Fried’s crypto empire has continued to rock the market in general.
Once one of the leading crypto exchanges in the industry, FTX imploded in November after the exchange had a bank run. It eventually ended up filing for bankruptcy.
Since then, its co-founder has been charged with several financial crimes and is now awaiting trial. Crenshaw said that the fact is that investing in these volatile and speculative investments is extremely risky.
Therefore, she recommended that people not invest more than what they can afford to lose.