Crypto Investors: Beware of “Proof of Reserves”

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Crypto investors may not be getting the full picture from audits of cryptocurrency companies.

That’s according to the Securities and Exchange Commission (SEC), which is particularly concerned about proof of reserve statements, The Wall Street Journal (WSJ) reported Thursday, Dec. 21.

Warned investors to beware of some of the claims made by crypto companies, said Paul Munter, acting chief accountant of the SEC, according to the report.

Munter told the WSJ that proof-of-reserve reports are designed to demonstrate that the crypto company has enough assets to cover its clients’ funds.

Investors shouldn’t place too much faith in the mere fact that a company claims to have obtained proof of reserves from an auditing firm, he said, according to the report. Providing such a report is not sufficient information for an investor to assess whether the company has enough assets to cover its debts.

Munter added that the SEC is reviewing how crypto firms portray their audits, warning audit firms to be cautious.

We are increasing our understanding of what is happening in the market, he said. If we find patterns of facts that we find troublesome, we will consider a referral to the Enforcement Division.

His comments come as cryptocurrency firms scramble to reassure investors in the wake of FTX’s collapse by establishing new watchdogs and hiring auditors. However, heightened scrutiny from regulators has led an audit firm, Mazars, to suspend its cryptocurrency work.

The South African firm’s move last week came after the firm was pushed back over its work for crypto giant Binance, with some industry players making the same sort of observations Munter made to about proof of reserve reports.

As PYMNTS wrote earlier this week, crypto investors and industry investors want to see proof that Binance, the world’s largest crypto platform, is cut from a different fabric than FTX, including the implosion rocked the industry.

The leading cryptocurrency exchange and its founder and CEO, Changpeng Zhao, who played a key role in triggering FTX’s corporate death spiral, are now themselves facing increasing scrutiny. scrutiny of the opacity of Binances’ operations and the creditworthiness of its crypto holdings, PYMNTS reported, noting that efforts to restore public trust have so far been difficult

Investors have withdrawn billions of dollars from the exchange, and the price of the company’s BNB token recently fell to its lowest level since July.

In a note provided to PYMNTS, Zhao said he expects the next few months to be bumpy, but the company will emerge stronger.

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