More than ever before, financial services regulators must increasingly adapt to technological advances. Perhaps no other technological advancement is more important right now than crypto currency. Crypto currency is defined as digital assets issued or transferred using blockchain technology. Earlier this month, the SEC, despite SEC chairman Gary Gensler’s well-known skepticism of crypto, granted Bitcoin, the world’s largest crypto currency, approval to be the first crypto asset listed as an exchange traded fund (ETF). This defining moment for crypto currency further cements the relatively new technology into the financial services and securities landscape.
Anticipating the changing tides, FINRA recently declared in its 2024 Annual Regulatory Oversight Report that it would add a brand-new Crypto Asset Development section – dedicated to providing guidance for member firms engaging in (or expecting to engage in) the crypto economy. This new section includes reports from FINRA’s November 2022 targeted exam reviewing the practices of certain member firms that communicate with retail customers concerning crypto assets and crypto asset-related services. The relevant time period of the exam was from July 1 through September 30, 2022. On January 24, 2024, FINRA published an update to the targeted exam, claiming that approximately 70 percent of the more than 500 retail customer communications it reviewed contained potential FINRA Rule 2210 violations (communication with the public), including the following:
- Failure to clearly differentiate between crypto assets offered through an affiliate of the member or another third party, and products and services offered directly by the member itself;
- False, misleading and unclear statements about crypto assets generally, including false statements implying that crypto assets functioned like cash or cash equivalent instruments, mainstreeting protections of the federal securities laws, FINRA rules, and
- SIPC and SIPA; and Comparing crypto assets to other assets (e.g., stock investments or cash) regarding varying features and risks of these investments with no sound basis to do so.
This should not be surprising. “This happens when there is a new frontier of investment categories. A lot of folks get very excited. What that means is [compliance] policies and procedures don’t catch up with the business side of the house,” said Bill Simpson, Director of Compliance at Hearsay Systems. Unlike traditional cash and security assets, crypto currency still has a lot to prove, especially considering most Americans are skeptical about it. FINRA’s findings will certainly not help. To make sure member firms comply with FINRA Rules, FINRA suggests the following effective practices:
- Before recommending crypto asset securities to customers through an unregister offering, confirming that investments can be issued in the form of crypto assets and, if so, understanding where the assets are maintained, how will proceeds be raised, etc.
- Conduct risk-based on-chain assessments when the firm or its associated persons are accepting, trading or transferring crypto asset securities and non-securities, and establishing procedures that address when and how these on-chain reviews should be performed and documented based on the product or services being offered; and
- Ensure customers clearly understand the differences between their brokerage account and any linked/affiliated crypto account.
It is imperative that firms mind these suggestions, especially as FINRA keeps a closer eye on crypto currency and SEC enforcements in the space increased more than 50 percent in 2023. If you dare to play in the wonderful new world of crypto, you should make sure your broker-dealers know how to talk about it.
The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circ*mstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.
About the Author: Jamie L. Helman
Jamie L. Helman concentrates her practice on securities, broker-dealer arbitration, litigation, mediation, employment matters, and regulatory defense. She has experience first-chairing FINRA arbitrations, defended on-the-record testimony of broker-dealer employees before FINRA, and is presently involved in the representation of broker-dealers in several pending FINRA cases as well as regulatory matters.
About the Author: Emmanuel L. Brown
Emmanuel L. Brown represents a range of clients involved in litigation. He assists at various stages of legal proceedings and trial preparation, including legal research, writing motions, and drafting other memoranda. Prior to joining the litigation group, Manny worked in the firm’s corporate and securities group for two years on matters related to finance, securities and mergers and acquisitions.
FAQs
Crypto is Here to Stay in 2024, So Be Careful How You Talk About It. More than ever before, financial services regulators must increasingly adapt to technological advances. Perhaps no other technological advancement is more important right now than crypto currency.
What will happen to crypto in 2024? ›
The 2024 Bitcoin halving, anticipated to drive prices up significantly, highlights the importance of Bitcoin in the crypto world. This event may lead to increased adoption, new regulations, and global financial system impacts.
Is cryptocurrency here to stay? ›
If you want a textbook case of innovation applied in real time, take the time to understand what's going on with cryptocurrencies: they're here to stay.
Should you hold crypto long term? ›
Benefits of Holding Cryptocurrency Long-Term
Less Volatility: Holding cryptocurrency for the long term provides investors with the advantage of increased stability. Long-term trading is characterized by lower volatility, as it prioritizes gradual growth instead of capitalizing on short-term price fluctuations.
Where is the latest safe place to keep your cryptocurrency? ›
Types of Crypto Storage
- Crypto Exchanges. Crypto exchanges are online platforms that help traders buy and sell digital currencies in exchange for cash, fiat currencies, or crypto tokens. ...
- Hot Wallet Storage. Hot wallets are online software for sending, receiving, storing, and monitoring crypto assets. ...
- Cold Wallet Storage.
$COINDEX can become the next 1000x crypto due to the high annual yield it provides token holders. Through the newly launched smart contract, one can stake $COINDEX and generate a high annual yield. To get in early on this project, purchase $COINDEX through the newly launched presale.
Will crypto be around in 10 years? ›
Key Takeaways. Bitcoin, the cryptocurrency, is most likely to remain popular with speculators over the next decade. Bitcoin, the blockchain, will probably continue to be developed to address long-standing issues like scalability and security.
Is crypto still a good idea? ›
The truth is that cryptocurrency is an extremely volatile asset. Investors need to understand that owning crypto involves taking on a great deal of risk in their portfolios. But for investors who understand how to manage risk, crypto could present great opportunities.
Is crypto the future or not? ›
Analysts estimate that the global cryptocurrency market will more than triple by 2030. This all leads to one big trend. Cryptocurrency, once only understood among a relatively fringe community of anti-establishment investors, is now becoming a household name – and quickly.
Will crypto ever go away? ›
The short answer: As a concept, cryptocurrencies will probably survive, experts told Al Jazeera. But the sector will likely face increased regulation and an extended period of uncertainty. Many firms and currencies will perish.
Most financial experts recommend limiting crypto exposure to less than 5% of your total portfolio. Crypto is considered a high-risk asset class. Limiting allocation helps manage overall volatility and risk. Those new to crypto investing may start with 1% to 2% as an introduction.
Is it worth keeping money in crypto? ›
Cryptocurrency is an extremely high risk investment, so investors should not put money in unless they're prepared to lose all their money. Investors are also unlikely to be protected if something goes wrong.
What is the number one rule of crypto? ›
Don't Invest More Than You Can Afford To Lose
Another key piece of advice: Don't invest what you're not prepared to lose, as crypto is inherently volatile and tends to experience massive swings. “Never invest any money that you aren't prepared to lose or lose access to.
What is the safest crypto to hold? ›
Bitcoin (BTC)
Bitcoin has continuously maintained the largest market capitalization and the strongest liquidity of all cryptocurrencies, which we see as a sign of strong investor confidence. It is traded on virtually all crypto exchanges, making it an attractive option for both individuals and institutions.
What is the most trusted cryptocurrency? ›
20 of the Most Popular Cryptocurrencies to Watch This Year
- Bitcoin (BTC) Bitcoin is the original cryptocurrency and is still the most well-known. ...
- Ethereum (ETH) ...
- Tether (USDT) ...
- USD Coin (USDC) ...
- BNB (BNB) ...
- Binance Coin USD (BUSD) ...
- XRP (XRP) ...
- Cardano (ADA)
The answer to the question “what is the safest way to store crypto” is a self-custody cold storage wallet. As covered earlier, options include hardware wallets and paper wallets. But that's not to say that holding 100% of funds in cold storage is right for everyone.
Will 2025 be a good year for crypto? ›
A 50% gain this year would boost Bitcoin's price to $65,800 by Jan. 1, 2025, while another 50% gain would drive its price to $98,700 by Jan. 1, 2026. So if Bitcoin merely replicates its average annual growth rate from the past decade, its price could approach $100,000 by the end of 2025.
Which coin will reach $1 in 2024? ›
While there are many promising options in the crypto world for 2024, one stands out as a potential game-changer: $PIKA. In the era of GameFi, where billion-dollar tokens reign supreme and GameFi projects are locking in billions, $PIKA emerges as a frontrunner.
How much will $100 Bitcoin be worth in 10 years? ›
A $100 investment in Bitcoin could purchase 0.00607 BTC today based on a price of $16,466.14 at the time of writing. If Bitcoin hits the $1 million price target by Wood in 2030, the $100 investment would turn into $6,070. This represents a gain of 5,970% from now until 2030.
How high will Ethereum go in 2024? ›
Ethereum Price Prediction Table
| Year | Average Price* | Percent Increase |
|---|
| 2024 | $2,970.96 | -% |
| 2025 | $4,797.88 | 100.00% |
| 2026 | $7,487.33 | 75.00% |
| 2027 | $10,918.50 | 42.86% |
8 more rows
