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SEC Going After Staking? From Coinbase’s Rumor To Kraken’s Staking Shutdown

Concerns mount across the community as two big events surfaced within 24 hours. Will the SEC ban crypto staking?

Coinbase’s CEO Warns That SEC Might Ban Crypto Staking

In a series of Tweets posted today, Coinbase CEO Brian Armstrong cited rumors that the US Securities and Exchange Commission (SEC) wanted to ban crypto staking for retail customers.

Staking is one of the most popular forms to generate passive income in cryptocurrency by locking crypto assets for a set amount of time.

It is also the simplest form and preferred investment option. So getting rid of staking will doubtless leave a big impact on the market.

Armstrong envisioned “a terrible path for the U.S.” if it was enacted.

“Staking is a really important innovation in crypto. It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints,” the CEO added.

Staking is Over in the USA?

There is fire where there is smoke. SEC Chairman Gary Gensler has previously stated that Proof-of-Stake assets could be regarded as securities under the Howey test.

Furthermore, the SEC Chairman also noted that stablecoins may come under the category of unregistered securities due to some of the tasks they serve and may compete with money market funds, other securities, and deposits, as well as pose serious policy difficulties.

Bitcoin is the only cryptocurrency that Gensler considers a commodity.

Armstrong’s revelation has raised concerns across the crypto communities. This particularly puts questions on the case of Ethereum. After The Merge last year, Ethereum transitioned from Proof-of-Work to Proof-of-Stake, promising more scalability and improvements.

However, the transition to PoS has investors concerned about the concentration of blocks generated today on the ETH network. The centralization issues that non-PoS advocates warn of are evident in on-chain metrics.

And now a possible staking prohibition is a bigger problem. Unlike the SEC, the Commodity Futures Trading Commission (CFTC) said Ether was a commodity.

Staking is a multi-billion industry. Data from Staked, a staking and lending platform, indicated that the staked assets were valued at $42 billion in Q4/2022 with staking rewards accounting for $3 billion annually.

Banning staking can trigger a ripple effect on crypto exchanges, protocols, ventures as well as other types of firms.

Kraken Terminates Staking Service

Rumors are getting more convincing after Kraken’s recent settlement with the SEC. Just a few hours after Armstrong posted tweets, Gensler revealed that Kraken was charged with security laws violations.

According to the official announcement, Kraken conducted unregistered securities sales through its “staking-as-a-service program.”

“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries must provide the proper disclosures & safeguards required by our laws,” Gensler concluded.

Under the settlement, the exchange terminated its staking service in the US and paid a $30 million fine for offering unregistered securities.

Kraken has bought many staking companies, notably Staked, in recent years. The company has also grown into other industries, including accounting services provider Interchange, Australian cryptocurrency exchange Bit Trade, and cryptocurrency monitor Cryptowatch.

Kiln, an institutional staking platform, was also funded by Kraken’s venture arm and ConsenSys in a €17 million (roughly $17.6 million) fundraising round.

The SEC’s mission is to enforce regulations that prevent market manipulation.

However, if the SEC attempts to outright prohibit crypto staking, the agency will hinder technical progress in the US, pushing away companies and investors.

The price of Bitcoin has abruptly dropped to break the $22,000 mark after receiving successive unfavorable news. After a long period of expansion, Bitcoin has dipped below $22,000 and is down about 4% in the last 24 hours.

Bitcoin’s decline is driven by news, and it may fall further.

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