Bitcoin Falls As Regulators Target High Yield Crypto Accounts
Bitcoin is trading below $ 30,000 again as yet another cryptocurrency firm faces regulatory issues, the latest headwind to hit the digital asset market.
The New Jersey Securities Office has issued a cease and desist order against BlockFi, a crypto trading and lending company, demanding that it cease offering interest-bearing accounts and cease accepting to new customers in New Jersey, starting Thursday.
BlockFi funded its trading and lending activities, in part, “through the sale of unregistered securities in violation of securities law,” State Attorney General Andrew Bruck said in a statement. “No one gets a free pass just because they operate in the rapidly evolving cryptocurrency market.”
BlockFi CEO Zac Prince said in a tweet that his accounts “are legal and appropriate for participants in the crypto market.” He added that a BlockFi interest bearing account is not security. BlockFi remains fully operational for existing customers in New Jersey, he added.
“We will continue to engage with all relevant authorities to protect the interests of our customers and ensure that our products remain available,” he said.
The state order targets BlockFi’s high-yield crypto accounts. Investors can buy a currency such as Bitcoin and deposit it into a BlockFi account where it earns interest, paid monthly in crypto, well above the yields on traditional bank or brokerage deposits. BlockFi pools deposits to fund its lending and proprietary operations.
BlockFi now pays 4% on up to 0.25% of a Bitcoin (BTC), worth around $ 7,500 at recent prices of $ 29,875 for the token. Other tokens offer higher returns: USD Coin (USDC) pays 7.5% while MakerDao (DAI) is at 8%.
BlockFi has raised at least $ 14.7 billion globally through these accounts, the statement said, but the company could be in violation of state securities law. BlockFi’s accounts are not registered as securities or bank accounts under state law, nor are they exempt from regulation, New Jersey officials said. While BlockFi says it is a regulated entity, it has not disclosed that its accounts are unregistered, violating state disclosure rules, according to the state order.
Unlike bank or brokerage accounts, which are insured up to $ 250,000 by the Federal Deposit Insurance Corp., or up to $ 500,000 by the Securities Investor Protection Corp., crypto accounts may not benefit from such protections. . BlockFi does not offer its accounts to residents of New York State and residents of other states, New Jersey officials noted, “possibly because of the laws of those jurisdictions.”
The larger idea is that regulators can focus on such high yielding crypto accounts and the larger sphere of decentralized finance, or DeFi, platforms.
These networks are proliferating in the financial and technological sectors. DeFi uses blockchain technology to create platforms and applications for tokens and digital transactions. It’s a growing field, comprising exchanges, stablecoins, and lending platforms like BlockFi. Dozens of new digital tokens are appearing on DeFi networks.
But regulatory oversight is a gray area. In New Jersey, the state now appears to view high yield crypto accounts as securities, which could subject them to additional regulations and disclosure rules.
Many companies are now building DeFi platforms, with the goal of getting into crypto-lending, trading, and other services.
(ticker: SQ) CEO Jack Dorsey tweeted last week that the company was planning to create a DeFi network, “to create a decentralized, unauthorized, no-custodial financial service.”
Grayscale Investments, one of the largest digital asset managers with $ 31 billion under management, launched a DeFi fund on July 14. The fund, available to high net worth investors with a minimum investment of $ 50,000, consists of a pool of digital tokens running on various DeFi networks. Its largest stake is a token called Uniswap, which owns 50% of the fund, followed by Compound, MakerDao and Synthetix Network.
Early investors might not be happy. The fund charges an annual management fee of 2.5%, and it’s down 9.2% since launching last week.
Write to Daren Fonda at [email protected]