Cryptocurrency is notorious for being technical and volatile. What do you get when the watchdogs that are supposed to protect consumers pull back? Recent changes in regulatory oversight have drastically changed the landscape. The Trump administration’s extraordinary influence has all but tied the Consumer Financial Protection Bureau’s (CFPB) hands. At DeliciousNFT.com, we dish up the juicy true stories from the decentralized frontier. We sift beyond the hype to break down what all these changes will really mean for your wallet and guide you through this new, complicated landscape.
The Shrinking Watchdog: CFPB's Reduced Role
The Consumer Financial Protection Bureau was established in response to the 2008 financial crisis. It has been a fierce fighter for consumers in the financial arena. Yet the Trump administration consistently tried to roll back the agency’s authority, even trying to eliminate it altogether. These bad faith efforts effectively tied the CFPB’s hands from actively policing and supervising rapidly developing financial technology. Consequently, the regulation of cryptocurrency was particularly fraught.
This retreat raises several concerns. Without a strong consumer protection watchdog, consumers are at higher risk. They are further opened up to predatory practices, scams, and market manipulation tactics rampant in the crypto space. Second, the agency is hamstrung in its ability to investigate and prosecute that wrongdoing. Accordingly, people have less opportunity to pursue justice if things go wrong. Lack of a strong consumer protection framework harms innovation and drives away responsible actors looking to enter the crypto market.
The effects of these modifications are already being experienced. Without strong guardrails and oversight, unregulated crypto platforms are booming. At the same time, complex scams are defrauding innocent investors and creating environmental harm, and the industry is under threat from a widespread opacity. The CFPB’s diminished role leaves a vacuum well-covered by bad actors just waiting to take over.
Enforcement Agencies Take a Step Back
The CFPB isn’t the only federal regulatory agency retreating from the field of crypto enforcement. It’s not just Treasury’s OFAC that has revised its view toward the crypto industry. This extends to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ).
The SEC, responsible for regulating securities markets, has faced criticism for its inconsistent and sometimes unclear stance on which crypto assets qualify as securities. This uncertainty has created a chilling effect that has caused confusion and an unwillingness among many companies to go all the way with compliance. Recent reports suggest a slowdown in SEC investigations and enforcement actions related to crypto, including those involving major players like Binance and Coinbase.
Notably, the DOJ acts as an important partner to the efforts of states to prosecute financial crimes and dismantled its own national cryptocurrency enforcement team back in 2022. This new, specialized team was created to first investigate, and secondly prosecute, crimes arising from or involving crypto-assets. The disbandment of this team is a major indicator that the Biden administration’s priorities have changed. Doing so illustrates how difficult it is to prosecute these complex cases.
All of these actions (or inactions) combined serve to create a more deregulated atmosphere for the crypto space. This transition will have a different impact on Democratic and Republican manufacturers. Others argue that deregulation leads to innovation and allows the industry to grow. Consumer advocates warn that this will further endanger consumers.
Understanding the Risks: What's at Stake?
Our regulatory oversight has diminished. Now, it’s more important than ever that consumers understand the dangers of investing in cryptocurrency. Here are some key areas of concern:
This leads many investors to mistakenly think that crypto assets are protected as robustly as traditional securities. This misconception can result in significant under-appreciation of the risk. The Securities Investor Protection Act (SIPA), administered by the Securities Investor Protection Corporation, protects investors when a brokerage firm fails. Yet, this protection only extends to securities as defined by SIPA. Crypto assets that aren’t securities by this definition, like most cryptocurrencies themselves, are not included. That’s because under these regimes, if a crypto exchange files for bankruptcy, their investors are likely to lose their entire investment.
Uninsured Holdings
In comparison, bank deposits are fully insured by the Federal Deposit Insurance Corporation (FDIC). Assets stored in digital crypto wallets have no government protection whatsoever. If a hacker accesses your wallet you may lose all of your assets. Likewise, if the platform on which you’re holding your funds shuts its doors, your assets might vanish too.
The value of cryptocurrencies can fluctuate wildly. What is a good investment worth thousands of dollars today might be only worth hundreds of dollars tomorrow. Due to this volatility, crypto is considered a highly speculative investment, and you should enter the market knowing that you may lose your entire investment.
Scams and Fake Reviews
We know that the crypto industry is full of scams and fraudulent schemes. These run the gamut from Ponzi schemes that offer fraudulent returns on your crypto investments to phishing attacks that capture your login information. Beware fraudulent client testimonials and schemes that offer low-risk, high-yield, guaranteed returns within a short time frame. As always, conduct your own due diligence and never invest more than you can afford to lose.
Unregistered Platforms
By engaging with crypto exchanges and trading venues that lack proper registration across regulators, consumer protections are at risk. As a result, these platforms don’t have the same compliance obligations that registered exchanges are required to maintain. The proliferation of regulatory gaps can exacerbate opportunities for fraud and market manipulation.
Unsuitable Sales Practices
Astutely assess for abusive or deceptive trading practices every time you engage with crypto exchanges and traders. Be on the lookout for transparency issues and fraud, too! Never stop being curious. Watch out for anyone who pressures you to invest immediately or proposes opportunities that seem too good to be true.
Staying Safe: Actionable Steps for Consumers
Here are some actionable steps you can take to navigate the changing regulatory landscape and safeguard your crypto investments:
Due Diligence is Key
Always do your own research before investing in any cryptocurrency or using any crypto platform. Know the technology, know the risks, know the company’s track record—the issue is understanding who you’re working with, and at what risk. Do your research on vendors, seek out independent reviews, and watch out for obvious good or bad reviews.
Diversify Your Investments
TIP #4—Don’t have all your eggs in one basket. Diversify your investments across asset classes, including traditional stocks and bonds, as well as within the crypto space itself. This can help to mitigate your risk.
Use Secure Wallets
Select a safe wallet Selecting the right cryptocurrency wallet is essential to keeping your crypto safe. Hardware wallets, or cold storage wallets, are a very secure way to store your cryptocurrency. By storing your private keys offline, they’re safe from digital attacks. Software wallets, or hot wallets, are more convenient but are susceptible to hacking.
Be Wary of Scams
As a rule of thumb, if an investment opportunity seems too good to be true, it probably is. Just make sure to do your own research and never invest more than you can afford to lose. Protect against phishing emails, spoof websites, and social media scams.
Understand Regulatory Roles
Get to know the potential roles of various regulatory entities, including the SEC, the CFTC, and state regulatory agencies. Know what each agency is expected to do, and how each one can assist you when you encounter an issue.
Report Suspicious Activity
If you see cryptocurrency-related fraud or other illicit behavior, file a report with the appropriate law enforcement agencies. This means the FTC, the CFTC, the SEC, and the Internet Crime Complaint Center (IC3). You can report this activity to the cryptocurrency exchange platform you used to send the funds.
Here's a more detailed breakdown of the steps you can take:
Research the Cryptocurrency: Before investing, understand the cryptocurrency's purpose, technology, and potential risks. Look into the team behind it, its market capitalization, and its trading volume.
Choose a Reputable Exchange: Select a cryptocurrency exchange that is well-established, has a good reputation, and implements strong security measures. Check if the exchange is registered with the appropriate regulatory bodies in your jurisdiction.
Secure Your Account: Enable two-factor authentication (2FA) on your exchange account and use a strong, unique password. Consider using a password manager to generate and store your passwords securely.
Use a Hardware Wallet: For long-term storage of your cryptocurrency, use a hardware wallet. This will keep your private keys offline and protect them from hacking.
Be Careful of Phishing Scams: Be wary of phishing emails, fake websites, and social media scams that try to trick you into giving up your private keys or login credentials. Always double-check the URL of any website you visit and never click on links from unknown sources.
Diversify Your Portfolio: Don't put all of your eggs in one basket. Diversify your cryptocurrency investments across different assets to reduce your risk.
Stay Informed: Keep up-to-date with the latest news and developments in the cryptocurrency industry. This will help you make informed decisions about your investments.
Be Prepared to Lose Money: Cryptocurrency investments are highly volatile and you could lose money. Only invest what you can afford to lose and don't put all of your savings into cryptocurrency.
Consult a Financial Advisor: If you're not sure whether cryptocurrency investing is right for you, consult a financial advisor. They can help you assess your risk tolerance and develop a suitable investment strategy.
The Role of Different Regulatory Bodies
We know that navigating the regulatory landscape of cryptocurrency can be daunting. So, it’s key to know the roles of various regulatory bodies and how they can affect your investments.
The Securities and Exchange Commission (SEC)
The SEC is the nation’s regulator of our securities markets. The SEC claims that most cryptocurrencies and ICOs are securities. Thus, they fall under SEC regulations. This means that companies that offer or sell these assets must register with the SEC and comply with its rules.
The Commodity Futures Trading Commission (CFTC)
The CFTC is charged with regulating commodity futures and option markets in the United States. Predictably, the CFTC has for years contended that some cryptocurrencies like Bitcoin are commodities. These digital assets thus become regulated by the CFTC. That means any company that provides or exchanges these assets have to follow CFTC regulations.
State Agencies
Beyond federal regulators, every state has their own laws and regulations that further govern or restrict cryptocurrency. These laws are often some of the most radically different laws from state to state. As always, be sure to do your own research about the laws where you live!
International Regulations
Cryptocurrency regulations vary widely around the world. Some jurisdictions have gone all-in on cryptocurrency, while others have opted to ban it completely. Regardless of how you choose to invest or use cryptocurrency, it’s crucial to understand the landscape of relevant regulations in whatever countries you operate.
The Future of Crypto Regulation
The future of crypto regulation is uncertain. As this industry grows and changes, so must and should regulators, striving to stay a step ahead. Some possible future developments include:
- Increased Clarity: Regulators may provide clearer guidance on which crypto assets are securities and which are not. This would help to reduce uncertainty and encourage compliance.
- International Cooperation: Regulators around the world may work together to develop consistent standards for cryptocurrency regulation. This would help to prevent regulatory arbitrage and create a more level playing field.
- New Regulatory Frameworks: Regulators may develop new regulatory frameworks specifically tailored to the unique characteristics of cryptocurrency. This could include regulations governing stablecoins, decentralized finance (DeFi), and other emerging areas of the crypto industry.
Staying Vigilant in a Decentralized World
The reduction in CFPB oversight, coupled with the evolving landscape of other regulatory bodies, underscores the importance of individual vigilance in the crypto space. At DeliciousNFT.com, we believe in the power of our readers. We prepare them to safely and confidently chart their own course through the complicated world we live in. Learn the hazards that come with investing in cryptocurrency and take measures to avoid losing your investments. Follow along here with FSR’s regulatory road map, and you, too, can explore the decentralized universe without getting scorched.
Investopia encourages all investors to conduct thorough research and seek professional advice before making investment decisions. Always invest only what you can afford to lose, and be wary of scams. The crypto industry is extensive and ripe with opportunity, but you need to do it with a healthy dose of skepticism and a dedication to doing good through responsible investing.
