The US financial watchdog, the SEC, has fined US crypto lending platform BlockFi 100 million. Their crypto Interest Account did not comply with securities laws. It is the highest fine handed out by the SEC to date. It is expected that BlockFi will not be the last centralized or decentralized lending platform to be in the regulatory crosshairs. Still, this is not necessarily bad news for crypto in the US.
The SEC's action should also be seen as some muscle flexing. They have scored points in the turf warbetween US government agencies for control of crypto-regulation. In crypto circles, the news is predominantly met with cynicism. 'Thank you SEC, for protecting American investors from receiving interest!'
Like Celsius and Nexo, BlockFi offers decent interest rates on crypto savings. About 8 percent on stablecoins is quite common. No wonder the SEC is going after such a financial product: it's quite the competition for traditional banks, where interest rates are a whole lot closer to 0%.
BlockFi says it has fully cooperated with the SEC and settled rather than challenged the allegations. BlockFi says it is submitting a new loan product, in the hope that it will comply with regulatory requirements. Incidentally, this changes matters only for account holders from the United States. Foreigners can still use the product. What is changing is that new US customers will not be accepted - but existing customers will keep their terms and conditions and will be transferred to BlockFi's new loan product in due course, if they wish.
Bad or good news for crypto?
The news is not necessarily bad for the crypto industry. First, it's good that there will be more transparency about the sources from which institutions like BlockFi can pay their interest earnings. Second, this case paves the way for acceptance by the traditional minded SEC of similar financial products. The next loan product may well be approved and with it will come legal clarity. The legal uncertainty, which makes many traditional investors cautious about investing, will then disappear. That's good for adoption of crypto.