FDIC Warns Customers That Crypto Is Not Insured
- The Federal Deposit Insurance Corp. (FDIC) stated in a warning for depositors in American depository institutions that it does not insure crypto assets.
- The federal agency clarified its scope of services and also asked people to not fall into projects claiming that they are approved by the agency.
The Federal Deposit Insurance Corp. (FDIC), one of two agencies that supply deposit insurance to depositors in American depository institutions, stated in a recent advisory that “some crypto companies have misrepresented to consumers” that their products are eligible for the agency’s deposit insurance coverage or that customers are insured if the crypto company fails.
The recent crypto market downturn fueled by the collapse of the Terra ecosystem, crypto lending platform Celsius and crypto service provider Voyager Digital has led to many customers wondering if their funds are safe with similar platforms. As a result, certain firms claim that they are approved and insured by the FDIC which safeguards the investors.
The agency cleared the air regarding the scope of its safeguard in the recent announcement and also published the Fact Sheet: What the Public Needs to Know About FDIC Deposit Insurance and Crypto Companies which is “intended to address some common and emerging misconceptions about deposit insurance coverage and its application.”
“FDIC deposit insurance protects bank depositors in the unlikely event that an FDIC–insured bank fails. In such an event, the FDIC insures each bank depositor up to at least $250,000. Since the FDIC began insuring deposits in 1934, no depositor has lost a penny of FDIC–insured funds as a result of a bank failure,”the agency confirmed its history.
However, the agency followed this with the fact that the above statement “does not apply upon the failure of a non–bank, such as a crypto company.” Moreover, the FDIC also confirmed that its “insurance does not protect consumers with non–deposit products such as stocks, bonds, mutual funds, securities, commodities, or crypto assets.”
The insurance corporation recently asked Voyager Digital, which had partnered with agency-insured Metropolitan Commercial Bank, to correct the “false and misleading statements” about its deposit insurance coverage wherein it claimed to be insured by the federal organization. Voyager claimed that since it had partnered with an FDIC-approved bank, its US dollars were approved by the agency as well.
The organization believes that risks associated to exposure to crypto products “are elevated when a non-bank entity offers crypto assets to the non-bank’s customers, while also offering an insured bank’s deposit products.”
“FDIC insurance does not protect against the default, insolvency, or bankruptcy of any non-bank entity,said the federal agency
including crypto custodians, exchanges, brokers, wallet providers, and neobanks,”
On the other hand, Voyager is looking into a restructuring plan according to a previous report from BitcoinWisdon. The firm had filed for Chapter 11 bankruptcy earlier this month and is now dealing with offers from FTX and Alameda.
Additionally, we also noted that the former Chief Innovation Officer at Voyager Shingo Lavine and his father and business partner Adam Lavine, offered a new restructuring plan to the firm.