It should be noted that the situation itself, in which the head of the US Securities and Exchange Commission talks about the signs of fraudulent crypto projects, is quite amusing. The fact is that in recent months, SEC representatives have been actively accused of being too slow to react to failures of crypto projects that should have been intervened in. That is, SEC representatives are making accusations after some negative situation, not the other way around.

For example, the SEC did not formally accuse FTX founder Sam Bankman-Fried of defrauding investors until January 19, 2023. That said, the collapse of FTX took place in the first half of November 2022.

Sam Bankman-Fried accusations by the US Securities and Exchange Commission

One may also recall the case of internet celebrity Kim Kardashian. In the summer of 2021, she promoted the worthless crypto project Ethereum Max, with charges of illegally promoting digital assets only filed against her by SEC officials in October 2022.

Accordingly, in fact, agency officials are working on the charges. However, they are not helping to prevent investor losses, but are in fact already dealing with the consequences of what happened. Be that as it may, this does not prevent Gary Gensler from commenting on what is happening in the blockchain sphere in his role as an expert.

How not to lose money in crypto

The head of the US Securities and Exchange Commission began with some “heartfelt truths” – something every aspiring crypto investor should learn. Here’s his line.

If something looks too good to be true, it probably is. In addition, there are certain negative signs of a project that you can look out for.

SEC head Gary Gensler

This is indeed true, although many still believe in the myth that the crypto industry is synonymous with “easy money”. There are often not many opportunities to make quick money in crypto, but there is a much greater chance of losing all your capital altogether. Especially when playing with borrowed capital from an exchange, which can lead to instant liquidation of a trading position if the market moves in an unexpected direction.

Proof of this is the series of bankruptcies of major platforms in the last year. Until recently, they didn’t raise many doubts among customers, but the prolonged “cryptozyma” caused their funds to be locked up or completely devalued after the collapse of FTX, Terra, BlockFi, Three Arrows Capital and others.

In total, Gensler highlighted three obvious signs of a scam.

• The founders of the project cannot provide relevant documentation about the startup itself and its development plans;
• There is no evidence that the regulatory requirements of the jurisdiction where the startup is based have been met;
• Developers keep using complicated terms and fail to explain in simple words what they are supposedly working on.

Blockchain developers

According to Decrypt’s sources, the chairman of the US Securities and Exchange Commission has also warned potential investors against investing in projects that artificially create a sense of lost profit around them. This effect is achieved by constant hype, allegedly high demand for token sales and so on.

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Drawing on the history of crypto fraud, Crenshaw noted the importance of transparency to the industry. Here’s the relevant rejoinder.

Cryptocurrencies are notorious for scams, their developers claim to be transparent. What’s on the blockchain is transparent, but you can’t say with the same certainty about the rest of it.

Note that this quote mixes cryptocurrencies and centralised blockchain companies, which have been falling victim to bankruptcy throughout 2022. That is, the death of crypto fund Three Arrows Capital due to an overly bullish management position and further liquidation of their position is the problem of certain people and their decisions. Shifting the responsibility from such characters to the entire decentralised asset industry is wrong, as they are completely different entities.

Accordingly, this statement holds true for centralised exchanges – recall that after the collapse of FTX, many of them started publishing evidence of their reserves to reassure investors. However, such publications are not yet perfect, well only a few exchanges are willing to share their liabilities along with reserves.

It is worth noting that such conversations with army representatives have become traditional for the SEC head. For instance, in the middle of the month during a similar conversation Gary Gensler spoke negatively about digital assets. In particular, he explicitly stated that such coins would most likely fall to zero, with Gensler's reasoning unconvincing.

Securities and Exchange Commission building


We believe that Gary Gensler's recommendations in this case are rather obvious, well any investor can make an example of something similar. However, what is important here is that Gensler again comments on the cryptocurrency industry in terms of fraud and deception - and this somehow creates certain associations for novice coin users. Obviously, such remarks from such a well-known person would easily scare away new audiences from the promising technology, but Gary is not embarrassed by this. What's more, he continues to support such rhetoric and share his criticisms of coins.