Cryptocurrency Crimes: Crypto Startups Under Regulatory Scrutiny

Along with the popularity of digital tokens, cryptocurrency crimes are also increasing

Cryptocurrencies are immensely popular these days and it is getting hard to keep yourself away from memecoins like Dogecoin and Shiba Inu or stablecoins like Tether and Binance USD. But along with the popularity, cryptocurrency crimes are also increasing. According to Chainalysis, a crypto investigations firm, last year the number doubled and reached roughly US$14 billion in transactions globally, up from US$7.8 billion in 2020. While this jump in cryptocurrency crimes still just address 0.15% of all cryptocurrency transactions, it still represents a 79% growth in fraud in this nascent market, even as cryptocurrency transactions overall have more than quintupled (567% growth) in the past year to US$15.8 trillion in 2021, according to a Chainalysis report.

Crypto lending specialist BlockFi's US$100 million penalties to settle regulators' allegations sets the bar for other blockchain-based financing startups that may come under scrutiny from the Securities and Exchange Commission.

Regulators have alleged that BlockFi failed to register its lending product as interest-bearing security. The New Jersey-based company offers a savings product that lets users lend out their digital currencies at a rate of up to 9.25%, which is substantially higher than that paid by traditional financial institutions.

The penalties and fines were assessed based on the SEC order that found that from March 2019 forward, investors had lent cryptocurrency assets to BlockFi for its BIA product in trade for a promise of variable monthly interest payments — making these interest accounts securities under the law, and required to be registered or receive an exemption from the SEC, according to the release. BlockFi was also found to have been operating for more than 18 months as an "unregistered investment company because it issued securities and also held more than 40% of its total assets in investment securities, including loans of cryptocurrency assets to institutional borrowers."