Crypto lending firms on the hot seat: New regulations are coming?

The sheer amount of money invested in the crypto space is causing regulatory dialog to occur at a frenetic pace as regulators struggle to keep pace.

Is crypto lending legit?

New York state is not alone in questioning the process of crypto lending. Alabama, Kentucky, New Jersey and Texas brought cease and desist orders against NJ based lender Blockfi in July and Celsius in September. Both were alleged to have “unlawfully offered unregistered securities in the form of high interest-bearing accounts used to fund their lending operations and proprietary trading.”

Investors often don’t realize that the 8-9% interest they're earning on their crypto deposits — at a time when savings rates at traditional banks are well below 1% — comes packed with certain risks, i.e., their entire stake can be wiped out if the project is hacked or collapses, regulators have suggested.
Regulators are struggling to keep pace

Anne Termine, a partner in the government enforcement and investigations practice at Bracewell LLP and former chief trial attorney at the Commodities Futures Trading Commission (CFTC), said that “there are no easy answers” on the crypto regulatory front, but the sheer amount of money invested in the crypto space now is causing the regulatory dialog to occur at a more frenetic pace, telling Cointelegraph:

“In any industry, innovation comes first and regulation comes after. What’s happening here is that the innovation is happening at such a speed that the regulators are struggling to keep up.”

In sum, the cryptocurrency and blockchain industry is “not something that can be ignored anymore” by regulators, said Termine, who worked nearly 20 years at the CFTC. “Ten years ago, it seemed that this was a fad,” the province of software engineers in an obscure corner of the world.

No one took the idea of an open decentralized financial network seriously. “But 10 years later, there’s more than $2 trillion of market value floating in this space, and regulators around the world have to sit up and say, ‘We can’t not look anymore.’”