By Ann C. Logue
In the 13 years since Bitcoin’s introduction, the consensus is that the technology is interesting, but there’s still not much you can do with the actual coins. They change in price with supply and demand, of course, but there are few ways to spend them other than converting them back into the dreaded fiat currency that crypto was supposed to replace. The true believers are scrambling for ways to make crypto a stand-along product, but the products often seem too good to be truly unregulated.
This week, cryptocurrency exchange BlockFi got hit by the SEC and attorneys general in 32 states for offering a product that the SEC said should have been registered. The BIA, or BlockFi Interest Account, functions like a bank CD or bond mutual fund. Investors give their crypto to BlockFi, which then loans it out and collects interest. This is a much more formal process than yield farming, in which cryptocurrency enthusiasts loan out their crypto through an app rather than through an organized investment product. BIAs have been on the market since March of 2019 without registration under the Investment Company Act of 1940.
The problem is obvious to anyone who has spent any time in the investment business. BIAs look like traditional investment accounts, which are heavily regulated. While some of the crypto fan boys would argue that the lack of regulation is the whole point, the reality is that crypto will never be more than a gamble unless it joins the mainstream financial system.
The settlement that the SEC announced on Monday is a key step in getting BlockFi to join respectable, regulated society. The settlement the SEC called for a $50 million penalty payable to the Feds and another $50 million to be divided among the 32 states that brought charges, a cease in sales of BlockFi Interest Accounts, and an attempt to bring the business under the purview of the 1940 act within the next 60 days. BlockFi’s parent company also announced that it intends to register a new lending product under the Securities Act of 1933.
Although BlockFi’s management is going to spend a ton of fiat currency on fines and securities lawyers, it now has a way forward for its interest-bearing products. There’s still not a reason to use cryptocurrency, but there’s another piece in the infrastructure necessary for that to happen.
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