SEC Has Fired Its First Shot at Cryptocurrency Lenders

It’s the first major enforcement taken by the regulatory agency and provides clarification over the previously uncertain area regarding cryptocurrency lending products with links to interest-bearing accounts. The SEC has issued a warning as well that it would bring more cases forward if cryptocurrency lenders failed to register their products as securities with the commission.

“This is the first case of its kind with respect to crypto lending platforms,” said Gary Gensler, the SEC chair. “Today’s settlement makes clear that crypto markets must comply with time-tested securities laws.”

BlockFi will be paying a total of $100 million in penalties, with $50 million going to the SEC and the other $50 million allocated to 32 states. The platform sold BlockFi Interest Accounts (BIA) beginning in March 2019, and the SEC has said that in its failure to register accounts that had offered regular interest payments, it broke the securities law.

This is the first step this year in crypto regulation by the SEC and could be the beginnings of major regulatory attempts to bring crypto to heel within existing or new regulatory frameworks.

For its part, BlockFi hasn’t admitted wrongdoing but was quick to cooperate with the SEC, thereby avoiding even steeper financial penalties. The company will be continuing its BIA accounts but has closed any new investments into them, and it is pivoting to launch new accounts that will be registered with the SEC.

It’s a time of uncertainty as the threat of regulation continues to hang over the crypto economy, a major concern for investors in 2022. For those investors who are seeking crypto exposure but want to go through already-regulated spaces while diversifying for volatility in case of tightening SEC regulations in the future, the WisdomTree Enhanced Commodity Strategy Fund (GCC B) can be an excellent option.

GCC invests in a basket of commodities and bitcoin futures in seeking diversification in assets that are uncorrelated to most equities and fixed income returns. The fund is an actively managed ETF that offers broad exposure to the following commodities sectors: agriculture, energy, industrial metals, and precious metals, mainly via futures contracts. It also can invest up to 5% of its net assets into bitcoin futures contracts, a regulated space under the purview of the CFTC, but it does not invest directly in bitcoin.

Current weighting of GCC is 28.70% to energy, 22.11% to industrial metals, 19.01% to grains (agriculture), 15.10% to precious metals, 7.53% to softs (agriculture) such as cotton and sugar, 4.35% to livestock (agriculture), and 3.20% to bitcoin futures.

GCC carries an expense ratio of 0.55%.

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