On February 9, 2023, the cryptocurrency community learned of the US Securities and Exchange Commission (SEC) crackdown on staking services. The SEC fined Kraken, a cryptocurrency exchange, $30 million for offering an “unregistered offering” related to its US staking service. Digital currency advocates are now debating what constitutes a yield product vs. to a non-custodial solution that is not considered a security. Fox News journalist Eleanor Terrett predicts more regulatory crackdowns on the crypto space in the coming weeks, including enforcement actions against exchanges and banks.
Observers weigh in on the future of cryptocurrency staking after SEC crackdown
There is a lot of discussion about the recent actions taken by the main US securities regulator against crypto exchange Kraken and its staking service. The day before, Brian Armstrong, the CEO of Coinbase, warned that he had heard rumors that the SEC would try to eliminate cryptocurrency staking for retail clients in the United States. The next day, Kraken announced that it was ending staking services for US clients. The SEC, chaired by Gary Gensler, revealed that the regulator settled with Kraken on the issue for $30 million for civil penalties and takeback.
On Thursday, Gary Gensler stressed that cryptocurrency exchanges must comply with regulatory policies when offering investment vehicles to retail clients in the United States. during a interview Speaking on CNBC’s “Squawk Box” on Friday, Gensler echoed this stance. “Firms like Kraken can offer investment contracts and investment schemes, but they must provide full, fair and truthful disclosure,” Gensler said. “This protects investors who watch your show. That’s the basic law, and they weren’t following it.”
The enforcement actions have sparked debates about what constitutes a performance product vs. a non-custodial solution that is not considered a value. Economist and trader Alex Krüger weighed in. “Positive narrative twist for later”, Krüger tweeted. “Banning US exchanges/custodians from offering staking services will drive staking off-chain or abroad, making Ethereum decentralized and out of reach for US regulators. Decentralized Ethereum Ethereum is better.”
The Fox News reporter said that impending enforcement actions against cryptocurrency exchanges, banks and token issuers are coming soon.
SEC Commissioner Hester Peirce expressed an dissenting opinion and did not agree with the actions. Peirce said it was “very concerning” that the “SEC’s solution to a registration violation is to completely shut down a program that has served people well.” The commissioner emphasized that “a lazy, paternalistic regulator settles on a solution like this deal: Instead of starting a public process to develop a viable registration process that provides valuable information to investors, he just shuts it down.”
According to Coinbase’s chief legal officer, Paul Grewal, Coinbase’s staking service is different. “Coinbase staking program unaffected by (Thursday) news,” Grewal explained in a sentence. “What is clear from the (Thursday) announcement is that Kraken was essentially offering a performance product. Coinbase staking services are fundamentally different and are not securities.” In addition to the latest crackdown on staking, rumors are circulating that more enforcement is on the way.
On Thursday, Fox News reporter Eleanor Terrett reported that more regulatory actions are expected to hit the cryptocurrency industry in the coming weeks. Terrett tweeted, “SCOOP: Gary Gensler is embarking on a ‘midnight massacre’ to bring all cryptocurrencies under his control. In the coming weeks, the SEC, the New York Department of Financial Services, and the Office of the Comptroller of the Currency will initiate enforcement actions against exchanges, banks, and entities that mint tokens in an attempt to label most of them as securities. I am told that Gensler’s strategy is to take as many enforcement actions as possible while the 118th Congress is still being resolved.”
What do you think the future holds for cryptocurrencies with the increase in regulatory compliance actions? Share your thoughts and opinions in the comments below.
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