StartEngine Accounts Insured by Securities Investor Protection Corporation (SIPC) up to $500K
At the beginning of the year, the number of investors looking for strong returns in the crypto marketplace soared. You may recall Celsius – the now notorious crypto wallet that recently filed chapter 11 bankruptcy – was offering 18% interest rates on some tokens. This is unheard of in the real world where traditional banks offer a fraction of 1%. So, how could this be? Well, Celsius is not regulated and offers no investor protection. Now, did investors holding crypto in Celsius know that? Probably not, but they certainly do today. They probably lost their money – not only the gargantuan interest they were earning and reinvesting (why not, if you get 18%) – but also the initial principal they sent to their Celsius accounts. Today, it looks pretty obvious Celsius’ enormous returns were too good to be true. But hindsight is always 20/20.
By contrast, equity crowdfunding is regulated by FINRA, the SEC, and many other agencies. Why does this matter? Well, investor protection comes to mind. After all, investors have the right to know where they put their money. If you can lose your principal overnight, why invest? Why bother, if everything is at risk should the bank – or in this case, brokerage – go bankrupt?
The financial industry resolved these questions a long time ago in response to what was commonly known as a bank run. Put simply, when a bad rumor would start, all of a bank’s customers would want to withdraw their money back at the same time. If the bank couldn’t cover all the deposits, it would go bust. Sound familiar? This is exactly what happened to Celsius, and of course, they offered no investor protection. Nowadays, banks have the Federal Deposit Insurance Corporation (FDIC) which pays up to $250K per account if the company can’t return an investor’s money. Similarly, brokerage firms like StartEngine have SIPC which pays up to $500K for cash and securities.
FDIC and SIPC protections allow investors to trust their money and securities with regulated financial institutions. Crypto firms, on the other hand? No way, they don’t have it. Even Coinbase publicly admitted its accounts are uninsured.
That’s why it’s so important that at StartEngine we offer investors SIPC insurance with their accounts. This gives our investors the protection they need to safely hold their cash in StartEngine accounts, as well as securities purchased on the platform. Of course, this does not take away the risks inherent to investing – rather it means that should StartEngine go out of business, investors won’t lose what they hold in their accounts.
It may be that crypto enthusiasts were against traditional banks and brokerage firms because of the lower interest, loss of control, and obligation to reveal their identities. But today, they may think differently. Actually, they probably envy those of us who have protections – like investors at StartEngine – because right now, insurance looks really good.