If a crypto platform is offering double-digit interest rates, you might want to be skeptical, says Securities and Exchange Commission Chair Gary Gensler.
Speaking virtually at the RFK Human Rights Compass Summer Investors Conference on Tuesday, Gensler said crypto investors should be wary of crypto lending platforms, especially ones offering high yields to investors.
“I caution the public,” Gensler said. “If it seems too good to be true, it just may well be too good to be true in terms of those marketing and those websites that talk about seven or 17% returns.”
Gensler’s comments come just days after the crypto lending platform Celsius, which was advertising 18% returns, blocked customers from withdrawing the funds they had deposited with the platform.
Celsius worked like a quasi-crypto bank, allowing customers to deposit their funds and earn interest on them as Celsius passed on returns it got from lending them out to others.
Without naming any specific companies, Gensler criticized lending platforms that should be giving disclosures on how they are obtaining those high yields for customers.
“Frankly in this interest rate environment one has to wonder where those returns are coming from,” he said.
“They’re operating a little like banks,” he added. “They’re saying give us your crypto, we’ll give you a big return: 7%, four and a half percent.”
Gensler and the SEC have made moves to rein in crypto lending platforms before. In February, crypto lending and trading platform BlockFi agreed to pay $100 million to the SEC and state regulators after the agency accused it of failing to register the offers and sales of its retail crypto lending product. BlockFi didn’t admit or deny the allegations.
Last September, the biggest U.S.-based exchange, Coinbase, canceled plans to launch a lending product after the SEC said it would sue over it. In a blog post posted by Coinbase’s chief legal officer in September, the company revealed the SEC’s threat of litigation and questioned the agency’s actions.