SEC ex-Chief warns to exit crypto platforms immediately.

John Reed Stark, former head of the Enforcement Division at the U.S. Securities and Exchange Commission (SEC), issued a warning on June 8, 2023, via his Twitter account. The warning was bluntly labeled “Get out of crypto platforms now.”

Stark gave this warning to cryptocurrency investors in response to the SEC’s actions against Coinbase and Binance. On June 5, the SEC filed a lawsuit against Binance Holdings Ltd. and its CEO, Changpeng Zhao.

The day after the class action was filed, the watchdog filed a second lawsuit alleging that cryptocurrency exchange Coinbase had violated SEC securities laws.

Stark claimed that there is “not just a gap in customer protections, but a chasm,” pointing out that there are no regulations on cryptocurrency exchanges regarding order flow, price, or record-keeping.

He added that these exchanges are not required to follow U.S. rules and regulations, including those that forbid unethical practices like insider trading, market manipulation, and trading against clients.

Stark argued that the company was not registered with the SEC, which is why he believes there is a serious lack of operational oversight and customer safety.

In addition, Stark argued that cryptocurrency exchanges are not required to follow laws governing cybersecurity or privacy protection. They neglect to handle concerns since they are immune from internal compliance duties.

He also highlighted the lack of operational and financial minimum criteria, painting a bleak picture of the industry’s situation.

Centralized Exchanges Already Witness A Decline In Users

Stark’s warning is in line with the growing concern among investors about the regulatory ambiguities surrounding crypto platforms.

Many people are looking for alternative decentralized solutions due to a mix of legal scrutiny, insufficient security measures, and an absence of compliance practices.

The warning from Stark came at a time when trading volumes on centralized exchanges (CEXs) had started decreasing.

The monthly volume at centralized exchanges was down 23.2% from April and at its lowest level since November 2020.

Even before the most recent legal measures taken by SEC, the trading volume at centralized exchanges fell sharply in May, while it increased more on decentralized exchanges (DEXs) in the said period.

The crypto industry is operating outside the constraints imposed by what financial markets in the United States have generally been required to conform to.

According to Stark, if the category of assets desires to become more developed and broadly recognized, it must first comply with regulations, despite the criticisms raised by many in the crypto space.

This explains why there has been an increase in SEC enforcement actions against cryptocurrency firms in the past six weeks following the collapse of the FTX exchange.

Compared to the last five years, the SEC’s attempts to control the cryptocurrency industry witnessed a sharp uptick in the second quarter of 2022.