On February 14, 2022, the crypto exchange’s extraordinary blockchain was slapped with an unprecedented SEC fine. How big are we talking about here? Huge fine of 100 100 million. If you don’t know, this is the biggest punishment recorded against crypto companies
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If you are a BlockFi customer, like me, I am sure you have many questions and concerns about how this settlement will affect you. What if you are not a blockchain customer? You may be wondering how this will affect the advancing crypto space.
So, to help address these concerns, let me quickly explain what BlockFi has done, as well as their response. I also want to see how this will affect blockchain customers and how you should proceed with blockchain and crypto in general.
BlockFi Overview
Now, before I do anything else, if you are not familiar with them, let me give you a little background on BlockFi.
BlockFi was founded in 2017 and is currently headquartered in Jersey City, NJ. One of the main goals of BlockFi was to expand the reach of traditional banking services that were not previously accessible. And, as the company quickly gained a global presence it has been seen to work.
BlockFi’s various products have attracted users to the platform. In addition to offering an exchange, BlockFi offers low interest rate loans, a cryptocurrency rewards credit card and an interest bearing account where you can earn up to 9.25% APY.
Of course, BlockFi is not the only company offering high-yield crypto accounts. This is where customers deposit the cryptocurrency in the promise of a higher APY when the company lends that cryptocurrency for a fee. Similar features are available from Celsius, Nexo and Echo.
BlockFi, however, offers its users a centralized mobile app, a unique credit card and an array of other financial services. Moreover, a simple help center provides unique cryptocurrency usage cases and teaches blockchain users how to use the platform.
Another difference? Blockchain is the first company to reach an agreement with the SEC that obliges it to register its products as securities.
What has BlockFi done?
Okay, so let’s get into it. What exactly did blockchain do to get such a hefty fine from the SEC?
Originally, BlockFi was accused of failing to register its crypto loan products for retail. And, as a result, it violated the 1940 registration company investment law.
In particular, BlockFi has marketed its interest accounts as a way to deposit interest up to “9.25 percent” on crypto credits. But in reality, the percentage varies from month to month. And, it was also determined by how much money you deposited into your account.
If you get lost, there is a breakdown in the process.
Customers deposit crypto assets in BIAs (BlockFi Interest Accounts) via BlockFi – usually Bitcoin and Ethereum. Customers, instead, receive substantial interest in the form of crypto deposited into their accounts each month.
Basically, this system acts as a traditional savings account. But, you know, with crypto assets instead of dollars.
What makes BlockFi’s return seem so much higher than an average savings account? Well, it will lend crypto to both institutional traders and other parallel borrowers. But, thanks to demand and limited access, blockchain can charge high interest rates.
From the SEC’s point of view, this is a security. This means it must be registered as security or exempt from registration.
SEC response
“This is the first case of its kind for a crypto transaction platform,” said SEC Chair Gary Gensler. “Today’s ruling makes it clear that crypto markets must comply with time-tested securities laws, such as the Securities Act of 1933 and the Investment Companies Act of 1940. This further demonstrates the Commission’s willingness to determine how crypto platforms can be accessed. Compliance with this Act. I would like to thank and commend our outstanding SEC staff and state regulators for their efforts and cooperation in this settlement. “
“Crypto lending platforms that offer securities like BlockFi’s BIA should take immediate notice of today’s resolution and comply with federal securities laws,” said Gurbir S. Grewal, Director, SEC Division of Enforcement “Adherence to our registration and disclosure requirements is important to provide investors with the information and transparency needed to make well-known investment decisions in place of crypto assets.”
Although the government has said that its settlement with BlockFi is “the first of its kind in the field of crypto transaction platforms”, this is not its first run-in with a crypto company.
Coinbase pulled the plug on its lending program in 2021, dubbed the “high-yield alternative to traditional savings account”. Because it was a security, the SEC allegedly threatened to take legal action. Coinbase said at the time that it wanted “regulatory clarity for the crypto industry.” Since then, it has released a product that allows non-US customers to earn interest on their crypto.
Still, BlockFi will have to pay a 100 million charge. The SEC will be paid, $ 50 million will be paid directly, and the remaining 32 states will go. And, BlockFi agrees to stop selling BlockFI Interest Accounts (BIA) to new customers.
How is BlockFi responding?
You would think that a company that has just been fined the most would have a serious behavior. So far that has not been the case.
“Ever since we launched BlockFi, we’ve always known that strong engagement with regulators would be important for the adoption of cryptocurrency-driven financial services,” said Jack Prince, CEO and founder of BlockFi. “Today’s milestone is another example of our pioneering efforts to secure greater industry and regulatory precision for our clients, as we did for our first product – crypto-backed loans.”
“We want BlockFi Yield to be a new, SEC-registered crypto interest-bearing security that will allow clients to earn interest on their crypto assets.”
Now, this is unprecedented. Why? The SEC does not regulate interest products at this time. Because, you know, it’s all decentralized debt. This is one reason why they are able to offer such crazy interest rates.
We almost expected that BlockFi would publish a registered securities product, BlockFi Yield. As it turns out, BlockFi has to lead and I have to guess that other crypto exchanges will follow.
Now, here’s where I have a problem with this. The company said it was “willing” to file. Why is that a problem? Well, for months now, blockchain customers have been receiving emails about this new product. So, they knew that something was wrong. And, in my opinion, they should have something else to offer right now.
But, there’s a little more to that.
The real impact of blockchain settlement
For starters, BlockFi states that customers outside the United States will not be affected by the SEC settlement. US users, like me, will still earn interest on cryptocurrencies that are already in their interest accounts. However, they will not be able to make additional deposits. And, if the SEC approves it, those accounts will be turned into BlockFi Yield accounts.
What I find interesting is that now that you visit BlockFi’s website, there’s nothing to be proud of about how much money you can make with your Stablecoin. Now, the site is focusing on a crypto rewards card.
So, when I login to my BlockFi, everything looks up-and-down. But, I’m really curious. Has blockchain done anything illegal?
“The blockchain wasn’t very transparent. I think that’s part of the reason [the] The SEC followed suit, “said Robert Lay, a pitchbook fintech analyst. “These are new products, so no one knows what the real risks of these products are.” Users still don’t know if they can lose their Bitcoin and Etherium if they lend them or the product is 100% risk free.
In addition, regulators are reportedly investigating the digital lending practices of Celsius, Gemini and Voyager Digital.
“Other providers may register their products with the SEC, or they may try to fight it in court,” Lee said. His prediction is that Celsius, which is primarily about crypto loans, will try to prove that these are not securities so they do not have to be registered with the SEC.
And, given that the company has made false and misleading statements about the loan portfolio and the level of risk involved in lending, investors have a right to work with BlockFi to raise concerns about the level of risk.
Is crypto going to end?
I hate to break the news to all the crypto haters out there. But, as long as there is demand, this is not the end of crypto. And, if you want to know, the demand is high.
At the same time, the ripple effect will remain.
Well, it puts pressure on his peers by playing nicely with the SEC (because of its responsibilities). Approving the SEC’s high-yield crypto loan plan will have a huge edge over BlockFi’s competitors. As far as BlockFi is concerned, this settlement is only a minor push. The situation is a lot like the settlement of Draftkings and Fandewell with the New York Attorney General last year, which helped them become industry leaders.
But, there could be more serious consequences.
In an interview with TechCrunch, Max Dilendorf said the SEC’s move against blockchain had “essentially” wiped out the crypto lending business model.
What if a crypto company wants to continue selling interest-bearing products? It must complete an S-1 registration statement. And, it would be like a public-trade company. In order to buy products that carry interest, investors must be recognized. That is, unless they qualify (and win) for certain discounts, he said.
Smaller space players may be crushed by new rules, regulations and associated costs.
“Blockfy could probably go ahead [offering registered securities] Although the results are not certain, because it is a $ 3 billion company, “said Dielendorf. “What about a small DeFi protocol? If they become the target of similar enforcement action, they will be wiped out.”
The worst case scenario.
There is a possibility that the products that BlockFi, Celsius, Nexo and Echo want to offer will not be approved by the SEC. That’s what SEC Commissioner Hester Pierce wants to happen.
According to a statement on the SEC website, he was not on board with the settlement and believes that the blockchain’s S-1 process “will take longer than the more traditional filing.” In addition, BlockFi will “jump through another regulatory hoop,” the investment company law said. In addition, he considers 60 days অথবা or 90 days if BlockFi gets an extension “to be“ extremely ambitious ”.
Bottom line?
I don’t think you have to panic and withdraw everything if you have a blockchain account. However, I will not add to it. And, I’ll probably explore options like Celsius or diversify my crypto accounts. This way it will be easier to move the case only.
Is Post Crypto Ending? This $ 100 million settlement will affect Crypto forever.
