The crypto loan under the microscope

Now there is another example of US regulators looking askance at the cryptocurrency lending industry.

Driving the news: Cryptocurrency lender Celsius fell victim to securities breaches by three separate state regulators on Friday.

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Between the lines: The root cause is the current uninspiring economic environment and the desire for a growing crop of U.S. bitcoin holders to earn a return on their crypto.

What is happening: A handful of crypto lenders have sprouted up. They will be happy to keep your bitcoin, lend it, and get you interested in the deal.

  • These paid accounts generate far more yield than your local savings account.

  • Yes, but: A host of state regulators claim these accounts represent unregistered securities.

The context: It all started with crypto lender BlockFi. In July, New Jersey, Texas and others challenged the company’s interest-bearing accounts.

  • Regulators have said the product, which puts clients’ cryptocurrencies under the control of the lending platform for BlockFi to invest and mix with other funds, could violate securities law.

By steps Coinbase. Thanks to a tweetstorm this month by Coinbase CEO Brian Armstrong, it became clear that the SEC had similar concerns.

Fast forward to Friday: State regulators in Texas, New Jersey and Alabama have acted in quick succession against Celsius.

  • “If you sell securities in NJ, you must comply with the securities laws of NJ. And that includes those who operate in the cryptocurrency market, ”New Jersey Acting Attorney General Andrew Bruck said in a tweet announcing the Garden State shutdown and forbearance against Celsius.

  • “They should encourage us because we are effectively helping to redistribute wealth and provide opportunity for everyone, not just the 1%,” Celsius CEO Alex Mashinsksy said in an AMA to company loyalists.

The bottom line: Crypto lenders don’t really comply with current regulations and regulators are waking up to this fact.

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