Bitconnect charged with $2B in crypto fraud case

Decrypt Editor-in-Chief Dan Roberts joins Yahoo Finance to discuss the latest with Bitcoin regulation.

Video transcript

JARED BLIKRE: Welcome back to "Yahoo Finance Live." I'm Jared Blikre. It's time now for our Crypto Corner that we are going to bring in Decrypt editor-in-chief Dan Roberts. Almost said our own, but haven't been our own for a little while here. Great to see you, Dan. I can finally see you right there on my monitor. We've got to talk BitConnect first. SEC is going after them for an alleged $2 billion fraud against customers. But this is kind of a larger-- maybe part of a larger story here. We've heard Gensler kind of ramp up the rhetoric about crypto fraud. So I'm just wondering what your thoughts on the whole situation is, and then BitConnect in particular.

DAN ROBERTS: Yeah. Hi, Jared. Good to be back on with you guys. And BitConnect is really a fun example-- I guess maybe not fun for the people involved, but the SEC had already previously sued the promoters of BitConnect. And by the way, the heyday of this project was really three years ago already, amid the ICO boom. Now, the most recent development is the SEC going after the founders of the project, basically alleging that it was all a pyramid scheme.

And I think there are a couple projects in crypto companies right now that should take careful note of the SEC going after BitConnect because the nature of BitConnect was you would deposit your Bitcoin holdings, it would spit out to you the BitConnect token, and then its trading bot would, presumably, give you returns and invest your money in a number of bets spread across the altcoin space, and you would see the great returns you were getting. The allegation from the SEC is there was no real bot there, there were no returns, it was a Ponzi scheme and they were skimming off the top to pay off their early investors first. And as you said, just one example of many projects from that heyday in 2017 and 2018 that the SEC went after.

The larger story here is wondering how the SEC is going to handle crypto companies. I mean, I mentioned other companies that should take note. BlockFi is this high-yield crypto savings account that currently has a number of different states concerned about the nature of their business, and whether its savings accounts amount to being unregistered securities.

So the biggest question in cryptoland is what Gary Gensler will do with crypto regulation, whether he's friendly or not, whether he'll approve a US Bitcoin ETF. And each instance of one of these cases with a high dollar value is potentially a sign that they're going to really crack down on these. And Gary Gensler already said that he thinks a lot of defi, decentralized finance projects and tokens might be unregistered securities.

SEANA SMITH: Dan, I mean, what do you think this means, then, for this sector more broadly speaking? Because we have this regulation concern from the SEC, and then we also had the report that the Treasury wants crypto reporting rules in the $3.5 trillion reconciliation bill. So there's more and more regulation-- we've been talking about this-- potentially coming here for this sector. And it makes sense, I guess. Do you think it could potentially scare away some investors, or could it be a good thing for the industry?

DAN ROBERTS: Well, it depends whom you ask, right, Seana? And I think the last part that you said would be probably the average Yahoo Finance viewer's angle on it, which is that regulation is good for this space. It brings in safeguards. It's meant to protect everyday investors. And Wall Street types might take the view that it makes the whole space more legitimate. I mean, people like Anthony Scaramucci, traditional investors who've gone big on crypto-- Cathie Wood. They're saying rah-rah regulation, bring on the regulation.

Of course, the crypto purists-- and this has been a fascinating push and pull in the industry-- for them, a lot of the reason they got into this space was they liked that it wasn't regulated, that it's outside of government control. They see these stories and they see these statements by the Gary Genslers and the Elizabeth Warrens, and they say, this sucks. And you mentioned the newest language in the newest bill in the Senate, and you know, crypto people are very up in arms about that, crypto reporting.

But a lot of the things that regulators and lawmakers want to see crypto companies adhere to-- KYC, know your customer, AML, anti-money laundering rules and regulations-- are just typical safeguards. And it just shows that, you know, it's not that the regulators want crypto to go away and they want to kill it. It's actually-- you could argue the opposite. They view it as legitimate. It's here to stay. They know it's not going away, but they think there should be safeguards for investors.

JARED BLIKRE: Well Dan, before we go, got to talk NFTs. We've seen finally a surge in their volumes again after a crash, which coincided with the crypto crash. My theory is it's really correlated to the price of Ethereum. I'm wondering what you're seeing in the space.

DAN ROBERTS: Well, just today, as we speak, Sotheby's has begun an auction of Bored Ape NFTs. So you got Christie's has done CryptoPunks, Sotheby's doing Bored Apes. I mean, more and more traditional, legitimate art and brand names are getting into the NFT space. Visa bought a CryptoPunk. Budweiser bought an NFT and registered a .eth domain name.

So all of this is being viewed by certain people as more legitimate. Of course, to some, it just looks like a bubble. But as you said, we thought they were dead. Now they're back, so maybe they weren't so dead. You're right that it's tied to the price of Ethereum, but I also think it's about more and more people changing their view and being willing to expand their definition of what constitutes valuable art.