On February 9th, 2023, the US Securities and Exchange Commission (SEC) levied a $30 million fine against cryptocurrency trading platform Kraken for offering an unregistered “staking service” to US customers. The action has sparked a debate within the digital currency community regarding the definition of a yield product and non-custodial solution. Fox News journalist Eleanor Terrett also predicts that more regulatory crackdowns are on the way, with enforcement actions against exchanges also expected.
Observers Discuss the Future of Crypto Staking in the Wake of the SEC Crackdown
There has been much discussion about the SEC’s actions against crypto trading platform Kraken for its staking service. The day before the announcement, CEO of Coinbase Brian Armstrong had mentioned rumors about the SEC trying to prevent cryptocurrency staking from retail customers in the United States. The following day Kraken announced that it was closing staking services for US customers. SEC chair Gary Gensler accused the platform of violating registration rules when offering investment vehicles to consumers in the US. In an interview with CNBC’s “Squawk Box” on Friday, Gensler reiterated this sentiment. “Firms like Kraken can offer investment contracts and investment schemes, but they must provide full, fair and truthful disclosure,” Gensler mentioned. “This protects investors who monitor your offer. They didn’t always follow the basic regulation.”
There have been heated debates about the enforcement actions and what constitutes a yield product. Economist Alex Krüger weighed in. “Positive narrative twist later,” Krüger tweeted. “Banning US exchanges/custodians from providing staking services will drive staking off-chain and overseas. Decentralized Ethereum is harder to reach for US regulators.”
Fox News Reporter Predicts Further Enforcement Actions Against Crypto Exchanges, Banks and Token Issuers
SEC Commissioner Hester Peirce was the sole dissenter in the action and voiced her disapproval. “It is very concerning that the SEC’s response to a registration violation is to completely shut down a program that has served people well,” Peirce was quoted. “It is important that a lazy, paternalistic regulator does not settle on a solution like this deal: Instead of launching a public process to develop a viable registration process that provides valuable information to investors, he just shuts it down.”
Coinbase’s Chief Legal Officer Paul Grewal claims that Coinbase’s staking service is different. “Coinbase’s staking program is not affected by [Thursday’s] news,” Grewal explained in a statement. “What is clear from [Thursday’s] announcement is that Kraken was essentially offering a yield product. Coinbase staking services are fundamentally different and are not securities.” In addition to the recent crackdown against staking, rumors suggest that more enforcement is on the way.
Fox News reporter Eleanor Terrett reported on Thursday that more regulatory actions are expected to be taken against the cryptocurrency industry in the coming weeks. Terrett tweeted, “SCOOP: Gary Gensler is launching a “midnight massacre” to bring all cryptocurrencies under his control. In the coming weeks the SEC, the Securities and Exchange Commission, will release more information. The New York Department of Financial Services and the Office of the Comptroller of the Currency will begin enforcement actions against banks, exchanges and other entities that issue tokens in an effort to classify most of them as securities. I am told Gensler’s plan is to take as many enforcement actions as possible while the 118th Congress continues to be worked on.”
Do you think cryptocurrencies will be safe in the long-term with regulatory compliance increasing? Let us know your thoughts in the comments below.
