The United States Securities and Exchange Commission, as well as the Financial Industry Regulatory Authority, have announced an investigation into several companies regarding billions of dollars in crypto purchases. Specifically, both bodies will be looking into whether the companies violated disclosure laws while discussing their investment plans in the digital asset space.
This comes as more money than ever before is being poured into the crypto sector by large corporations, as well as growing political support. Should these investigations lead to sanctions, it could impact how cryptocurrency can receive institutional investments moving forward.
The Incoming Investigation
At the heart of this investigation is a trend of companies raising capital to purchase cryptocurrency to fill their corporate coffers. This has been notably done by companies like MicroStrategy, but has been on the increase as cryptocurrency itself becomes more valuable. Years ago, even top tokens like Bitcoin were worth a few thousand dollars at most. Now, the world’s most famous crypto is worth over $100,000 per unit, and naturally, more companies are willing to get involved in it.
We’ve seen this reflected not just in the demand for tokens but for crypto-related services. Custodial services, both large-scale and individual, have been growing in popularity. This is because a need for cryptocurrency means a need for cryptocurrency storage solutions. If a consumer needs Polygon tokens, for example, they will naturally invest in a Polygon wallet. As such, institutional investment in cryptocurrency touches every aspect of the industry, and stakeholders will want it to continue.
But as companies are investing in cryptocurrency, the SEC and the FINRA are concerned that the law may be broken. Over 200 companies are being investigated partially because of observable trading patterns with regard to their shares. Specifically, many of these companies see increases in not only trading volume but also stock prices around the time that these crypto investments are announced. The SEC, which is currently going through several politically induced changes, suspects that some insiders might know the crypto trading strategies before they are formally announced to the public, which constitutes insider trading.
The SEC enforces a law called the Regulation Fair Disclosure law, which means that companies cannot share information that is not yet public to investors. This has traditionally applied to shares and stocks, but now, cryptocurrency is finding itself in the mix.
Further complicating the matter is the fact that many of these companies trade on the NASDAQ, which is tightening the rules around raising funds for crypto purchases. Earlier this month, it announced that there will be tighter rules for companies looking to raise public funds to buy cryptocurrency.
The Implications
Many experts have noted that as more companies are investing in cryptocurrency, dramatic share spikes following these announcements are no longer as common. As a novelty wears off, regulators have the complex responsibility of ensuring that the space does not become riddled with misconduct. By ensuring that disclosure laws are not broken, investors in these companies, and crypto by extension, can be duly protected, and the companies are forced to act responsibly.
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