Investors have been cautioned by a senior Securities and Exchange Commission official to be “very wary” when relying on a cryptocurrency company’s “proof-of-reserves”, as reported by Cointelegraph.
Cointelegraph noted that in an interview with The Wall Street Journal on December 22, Paul Munter, the acting chief accountant of the SEC, stated, “We’re warning investors to be very wary of some of the claims that are being made by crypto companies.”
Since the demise of the cryptocurrency exchange FTX, a number of crypto companies have requested “proof-of-reserves” audits in an effort to allay concerns about the stability of their own exchange.
“Investors should not place too much confidence in the mere fact a company says it’s got a proof-of-reserves from an audit firm,” Munter added.
He continued by saying that these proof-of-reserve reports “lack” the information necessary for stakeholders to assess the company’s ability to cover its liabilities, Cointelegraph further noted.
Munter also recently gave a speech at the Association of International Certified Professional Accountants Conference in Washington, D.C. on December 12, where he reportedly vented his frustration over the structure of cryptocurrency firms, which is constantly changing.
A proof-of-reserve audit is still a practical step to review the financial stability of cryptocurrency exchanges, but it is insufficient on its own, according to Ben Sharon, co-founder of the digital asset management company Illumishare SRG.
Due to the failure of major cryptocurrency companies like Three Capital Arrows, Celsius, and most recently cryptocurrency exchange FTX, investors have lost millions of dollars over the last 12 months.
(With insights from Cointelegraph)