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The Accredited Investor Requirement Costs U.S. Crypto Investors a Lot

If you’re not a U.S. citizen or permandent resident, you’re not required to be an accredited investor. So you can skip this article and read something more useful or interesting.

An accredited investor is a made-up definition from the Securities Act of 1933.

I say it’s made up because all financial definitions are made up, and rarely for your benefit.

This one keeps poor people poor and makes rich people richer. Whether that was the deliberate plan in 1933, or an unintended consequence, is anyone’s guess.

No one has to guess, though, about this regulation’s effect on the average U.S. citizen’s options for crypto investments.

Its declared purpose was to save the little guy from himself. Since he lacked the knowledge and wisdom to invest his money safely, the government had to protect him.

Think I’m being a little hyperbolic? Here’s what the U.S. government says it means to be an accredited investor. It’s from this April 2021 investor.gov bulletin:

Under the federal securities laws, only persons who are accredited investors may participate in certain securities offerings. One reason these offerings are limited to accredited investors is to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus rendering unnecessary the protections that come from a registered offering. 

Unlike offerings registered with the SEC in which certain information is required to be disclosed, companies and private funds, such as a hedge fund or venture capital fund, engaging in these exempt offerings do not have to make prescribed disclosures to accredited investors. These offerings involve unique risks and you should be aware that you could lose your entire investment.

So it’s okay for the unsophisticated to buy stocks. But it’s not okay for them to buy any investment that’s not registered with the Securities and Exchange Commission (SEC).

In its infinite wisdom, the SEC has decided that cryptocurrencies are unregistered securities. So you must be an accredited investor to do anything with cryptos on that list.

That includes earning interest on them. The SEC can’t stop you from buying crypto, but it can stop you from earning interest on those crypto assets.

And it’s forcing rewards platforms, like BlockFi, to restrict access. Only accredited investors can have interest-earning accounts on these platforms. (Anyone who lives outside the U.S. isn’t restricted.)

How the Regs Define an Accredited Investor

According to this page of the Code of Federal Regulations, an accredited investor can be a legal entity or a natural person. (A natural person is a human.)

For you (a natural person) to be considered an accredited investor, you must:

  • have a net worth of at least $1,000,000, not including the value of your primary residence; or
  • have had an income of at least $200,000 for each of the last two years, with an expectation that you’ll earn that much in the current year; or
  • have had a joint income with a spouse or spousal equivalent of at least $300,000 for each of the last two years, with an expectation that you’ll earn that much in the current year

Or you can hold one of three designations or credentials as a financial professional.

Other Restricted Coins and Tokens

Because of all the rules and regulations regarding unregistered securities, many exchanges have created U.S. versions.

These only offer crypto coins and tokens that don’t require accredited investor status for U.S. citizens and residents. And they don’t offer any way to earn income on assets left on the exchange.

Binance.us and ftx.us are two examples. Bittrex automatically redirects international users to global.bittrex.com.

So if you’re a U.S. citizen or permanent resident, you’ll have to trade on an exchange that’s just for you. That way you’ll always be buying, selling and trading coins or tokens that your government says are okay for you to own.

As an accredited investor on those exchanges, you’ll have a bit more leeway, but you’ll still be restricted to only the coins and tokens they make available to you.

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