The crypto world and the U.S. government have a fraught relationship, to say the least. The two rarely agree on different terms — be it what qualifies a security versus a commodity or what counts as a violation of free speech. Today’s crypto news presents yet another fissure between the two, however. The Federal Deposit Insurance Corporation (FDIC) is cracking down on what it asserts are fraudulent claims about how much it protects investors’ crypto.
The FDIC is a government body meant to insure banks. Specifically, it’s meant to oversee banks by insuring deposits at FDIC member-banks. These insurances protect customers’ deposits in case of any sort of failure on the part of the bank itself. The FDIC was founded in the wake of the Great Depression to try and prevent future bank failure. It insures things like checking and savings accounts, certificate of deposit accounts and other deposits.
The advent of the crypto industry is throwing the FDIC for a loop, though. That’s because many Americans are depositing money in lots of new places that the FDIC was not built to address. Namely, these include things like exchange custodial accounts and hot wallets. Now, the agency is making a clear and deliberate effort to distance itself. Specifically, today it’s levying a number of cease-and-desist orders against different crypto websites.
Five different websites recently received orders for making “false representations” about the relationship between crypto and the FDIC. Doing this is a violation of the Federal Deposit Insurance Act. These websites include FTX U.S., as well as four different crypto news outlets which reported that FTX U.S. is FDIC-insured.
Crypto News: FDIC’s Cease-and-Desists Aren’t a New Effort
Today’s crypto news out of the FDIC isn’t exactly new. The government agency has actually been mounting a crackdown in the crypto space for a while now. These new orders just represent one part of an ongoing effort.
Earlier this month, the FDIC issued another cease-and-desist order against Voyager Digital. Of course, Voyager Digital is one of several companies bankrupted by the recent crypto crash, unable to pay back many of its lenders. But the cease-and-desist relates to a blog post the company made in late 2019. The post tells customers that, in case of bankruptcy, funds will be protected by FDIC insurance. The company updated this post after its bankruptcy, saying customers are insured for up to $250,000 in deposits.
The FDIC asserts that this is not true, calling the claims “false and misleading.” The agency adds that, in the wake of Voyager’s bankruptcy, the claims “were relied upon by customers who placed their funds with Voyager and do not have immediate access to their funds.”
These cease-and-desist orders come just after the FDIC issued a statement to FDIC-insured institutions. The agency reminded these institutions that the body will not cover assets issued by non-bank entities like crypto, just as it doesn’t insure stocks.
Of course, this attitude toward the industry is now sparking the ire of some pro-crypto officials. Senator Pat Toomey is speaking out against the FDIC, for example; Toomey says the body is deliberately attempting to keep banks from working with crypto companies.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
