SEC warns crypto traders and investors of looming honey trap

• The SEC has foreshadowed an inevitable negative turn of events
• Bitcoin’s value has steadily declined. Unfortunately, its price significantly affects the overall crypto ecosystem
• Proof-of-reserve is crucial as it provides transparency to customers on the availability and backing of funds. Given the history of crypto scams and hacks, this can leverage most crypto exchange platforms.

In every aspect of humanity, be it in agriculture, pharmaceuticals, construction and even technology, the old will generally die due to various circumstances or scenarios while the new steps in. Unfortunately, the same principles may apply to blockchain technology, and the Web3 era as cryptocurrency is slowly losing value. During its golden age, when bitcoin’s value was at an all-time high of $69,000, many crypto traders thrived.

They were proud of being part of such a lucrative community. As its fame grew, so did crypto scammers and hackers as they also sought t exploit this new lucrative ecosystem. Alas, the concept of blockchain technology is still relatively new. Thus, various loopholes were discovered and exploited. Unfortunately, if only it were limited to crypto scams and hackers. Various crypto exchange platforms have taken advantage of newbie crypto traders. 

Various CEOs suddenly vanished with billions of dollars, leaving their crypto traders stranded without a single dime in their crypto wallets. 2022 is one of the worst years in cryptocurrency history. So much so that the Security and Exchange Commission has cautioned all crypto traders globally to be weary. As bitter as it may seem, it may be high time we accept the truth that maybe cryptocurrency is simply a steady slope to failure.

SEC warns crypto traders to be weary

With the recent FTX failure, the crypto ecosystem has received a decisive blow to its overall performance. Bitcoin’s value has substantially reduced, causing mass panic in crypto trades. Various crypto exchange platforms have also fallen prey to the financial gaps FTX left, and with desperate times, many have opted to turn to desperate measures to stay afloat. Some even at the expense of their crypto traders or employees.

The SEC has foreshadowed an inevitable negative turn of events. They have warned crypto traders that the probability of such is high. The acting chief accountant Paul Munter said that crypto traders should not place too much confidence and their savings in a company holding a proof of reserve audit.

With the looming danger of bankruptcy, various crypto exchange platforms have tried various strategies. Each is an attempt to retain customers amid the low Bitcoin values. A senior United States Security and Exchange Commission official has warned crypto traders to be very wary.

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The kind of crypto exchange platform they affiliate with is the crucial factor they must account for. One of the few tactics these crypto exchange platforms is acquiring a proof of reserve audit. After the FTX collapse, many crypto traders lost faith in CeFi organizations, and a few have transferred to more DeFi centralized organizations. 

Essentially this move is to reassure their clients that they can refund and reimburse all the funds stored within their blockchain network. However, Munter, a senior officer, states that these audits do not necessarily indicate that the company is in an excellent financial position. He further stated that these reports need more information for stakeholders and crypto traders. 

Crypto scams are also another factor that SEC also warns about. Given how 2022 has various cases of crypto scams, more often than not, these cases always appear genuine. Naive or new crypto traders are easy targets for such crypto exchange platforms, and after a certain threshold is collected, it vanishes into thin air.

Bitcoin’s value has steadily declined. Unfortunately, its price significantly affects the overall crypto ecosystem. These circumstances forced certain altcoins to shut down due to low prices and a lack of significant exposure. As many crypto traders try to believe that this is merely a phase, it may be high time that the era of cryptocurrency is over.

What is Proof of Reserves

In finance, reserves commonly refer to assets held by organizations that serve various purposes. Its general core purpose is to match customer deposits to refund customers in a crisis of financial loss fully.

Cryptocurrency applies this general principle as proof of reserve. This generally means an auditor verifies that the on-chain assets held by a company are no less than 100% matching customer assets. This report is a form of reassuring crypto traders that the crypto exchange platform can fund customers the total amount they choose to withdraw.

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Proof-of-reserve is crucial as it provides transparency to customers on the availability and backing o funds. Given the history of crypto scams and hacks, this can leverage most crypto exchange platforms. In addition, it enhances trust, an unspoken but crucial determinant for the crypto ecosystems. 

Most individuals do not realize that the hint of mistrust made FTX fall from grace. Once Coin Desk released the rumour of FTX conducting questionable businesses while using its customer’s funds, the trust built over the years instantly shattered. Crypto volatility has taught most veteran crypto traders that any sign of collapse will require a swift exit plan.

Obtaining proof-of-reserve will reassure paranoid and veteran crypto traders that their affiliated crypto exchange platform can fund crypto traders. Unfortunately, the SEC disproves this fact.

What now?

With CeFi slowly colla[sing the gap left by FTX, most crypto traders are opting to turn to DeFi. Unfortunately, Bitcoin’s value is still below the $17k mark. Early in December, John Reed Stark, former chief of the SEC of Internet Enforcement, raised a red flag on Twitter over Binance’s Proof-of-Reserve. He stated that Binance’s proof of reserve report needed to address the effectiveness of internal financial controls. In addition, it failed to express an opinion of assurance conclusion, nor does it vouch for the numbers.

The constant press for change by the SEC does indicate that the crypto ecosystem may be drawing its final breath. Granted, this is not the first crisis the ecosystem has experienced, and many argue that it is simply a shifting phase. Unfortunately, the truth of the matter is that the evidence shows itself. Bitcoin’s value is at an all-time low, and multiple crypto exchange platforms and digital assets have plummeted.

The security and Exchange Commission does not advocate for the complete abolition of digital assets and blockchain technology. Instead, they warn crypto traders and investors to stride cautiously. Web3 still has various aspects that will ensure its future. In addition, blockchain technology is applied in multiple sectors. Fortunately, there is still hope for Web3, although it may be high time to take our hats off for the cryptocurrency era.