The U.S. Securities and Exchange Commission (SEC) issued a stark warning to investors, emphasizing the need for caution when considering investments involving crypto asset securities.

What Happened: The SEC's Office of Investor Education and Advocacy retweeted an investor alert from March 2023, highlighting the exceptionally volatile and speculative nature of investments in crypto asset securities.

It pointed out that platforms, where these securities are bought, sold, borrowed, or lent, may lack crucial investor protections and that the risk of loss for individuals participating in transactions involving crypto assets remains significant.

The SEC notes that entities offering crypto asset investments or services may not be complying with applicable laws, including federal securities laws.

The SEC's alert also addressed the concept of "Proof of Reserves" used by crypto asset entities, cautioning that these assessments may not offer meaningful assurance of adequate asset reserves to cover customer balances.

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Why It Matters: The SEC emphasized that proof of reserves is not as comprehensive or rigorous as a financial statement audit and may not provide any level of assurance.

The SEC further stated that registration with the SEC as a broker-dealer or investment adviser provides critical protections for investors, including rules around asset custody, fees, conflicts of interest, and standards of conduct, warning that crypto asset entities not offering these protections put investors at risk.

The SEC pointed out that none of the major crypto asset entities is registered with the SEC as a broker-dealer, exchange, or investment adviser.

As a result, investors may not receive the protections afforded by the rules applicable to these entities.

The commingling of exchange, broker-dealer, and custodial functions in crypto asset entities creates conflicts of interest and risks for investors.

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