The Securities and Exchange Commission's announcement on Thursday of a $30 million settlement with Kraken, related to the exchange's staking product, caused crypto prices to tumble, ending weeks of upward momentum.
Staking, which involves users locking up tokens and earning yield to allow a blockchain to operate, is the backbone of a growing number of large crypto projects. The most widely used blockchain to employ staking is Ethereum, whose cryptocurrency Ether fell more than 6% on Friday to about $1,500—its lowest point since Jan. 19, according to CoinMarketCap.
After weeks of trending upwards, Bitcoin, which makes up 41% of the total crypto market cap, also fell 4% to about $21,600 on Friday. It was the first time the cryptocurrency had dropped below $22,000 since late January.
The settlement has raised concerns of whether the SEC and chairman Gary Gensler will continue with more enforcement action against the crypto sector. The chairman has previously said most cryptocurrencies are securities, and told Yahoo Finance in December that “the runway is getting shorter,” for crypto companies to voluntarily register with the SEC.
Meanwhile, Coinbase’s chief legal officer Paul Grewal told Bloomberg that Kraken’s settlement would not affect the crypto exchange, which also offers a staking product. Still, he asked for more clarity and clear rules from regulators in a Thursday tweet.
“Our customers’ rewards are tethered to realities,” he wrote in the tweet. “They depend on the rewards paid by the protocol and commissions that we disclose. We don’t play games.”
What is equally true: these products are basically yield products. True on-chain staking services like ours are fundamentally different. For example:
— paulgrewal.eth (@iampaulgrewal) February 9, 2023
Still, partly because of the possibility of further enforcement against the sector, the company’s stock also took a hit.
Coinbase’s stock was down about 3% on Friday, trading at $57.77. The drop is the latest setback for the company’s share price, which has plummeted 70% over the past year, due in part to a tough macro environment and the overall decrease in crypto prices.
The total crypto market cap fell 4.3% on Friday as it came close to falling from the ranks of trillion dollar asset classes after only recovering the status in late January after the fallout from FTX’s bankruptcy.
