10 Feb 2023 Samantha McLauren
US SEC Cracks Down On Kraken, Bitcoin Slumps 5%
The crypto sector seemed to have resurrected from the hiatus in 2022, but new regulatory crackdowns may turn the gains into losses. On February 10, the US Securities and Exchange Commission (SEC) settled with the Kraken crypto exchange for shutting down Kraken’s staking services. In addition, the exchange has to pay $30 million in penalties for not registering the staking program with the regulator.
SEC’s battle with staking services has been, so far, unfruitful, but Kraken’s case marks the first such crackdown. Other crypto exchanges like Coinbase and Binance could soon face the same consequences if SEC’s actions against unregistered staking continue.
SEC chair Gary Gensler confirmed the news, stating that among the primary reasons for the Kraken crackdown is that staking services providers fail to give customers proper disclosures such as how a crypto exchange is protecting users’ staked assets.
“When a company or platform offers you these kinds of returns, whether they call their services ‘lending,’ ‘earn,’ ‘rewards,’ ‘APY,’ or ‘staking’ — that relationship should come with the protections of the federal securities laws,” Gensler added.
Crypto staking is a common trait in proof-of-stake blockchains, where users can earn rewards in return for staking a part of their crypto belongings in order to validate transactions. In Kraken’s case, users would receive up to 20 percent in annual yield if they pledge to lock up their assets for a certain period of time.
However, Kraken remained silent about the agreement with the SEC. Rather, it only noted that the halt of its on-chain staking service would only affect US-based customers, with their funds automatically “unstaked” from the staking pools.
Meanwhile, Coinbase CEO Brian Armstrong stated that shutting down staking for retail customers would be “a terrible path for the US.”
“We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules,” Armstrong added on Twitter.
The SEC's actions echo in the crypto space
The regulatory attention of the SEC immediately drove Bitcoin down 5% over the past 24 hours, adding up to a weekly fall to 7.3% after experiencing a 40% surge throughout January.
The most prominent reason is investor fear after SEC’s latest actions, as the classification of different cryptocurrencies remains uncertain.
Meanwhile, other crypto projects also took a beating, with Ethereum losing 6 percent to a value of $1,539 per ETH, Cardano shrinking seven percent to a current price point of $0.361 per ADA, and Solana taking a 10-percent hit, pushing down its price to $20,7 per SOL token.
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