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Crypto Contagion – Managing Risk on Multiple Fronts

 |  May 1, 2023

By: Proskauer on Private Equity

Crypto firms going bankrupt and the resulting chaos they have brought upon the crypto ecosystem will continue to hurt liquidity and regulatory efforts and raise concerns in this space. Signs of this spreading contagion are everywhere as prices of almost every cryptocurrency type have fallen by half in recent months.  Since all participants supporting the crypto ecosystem are at risk, managing that risk is critical.

Fund managers should be prepared on multiple fronts, as the following examples illustrate:

  • Regulators broadening scope: The SEC is not just targeting fraudulent offerings but is scrutinizing all participants, including investors, in crypto transactions. At last count, the SEC and CFTC have brought five times as many crypto enforcement actions as the rest of the regulators in the world combined. 
  • Exchanges under scrutiny: After well-publicized actions against decentralized finance (DeFi) platforms, the enforcement spotlight is moving to crypto exchanges. With recent collapses, regulators are under pressure to act…