SEC Charges Kraken, Hitting Crypto Market
February 10, 2023 - The crypto market felt the impact of the SEC’s charges and settlement with the exchange Kraken over its staking service, with Bitcoin price dropping below US$22k. There were rumors yesterday that Kraken was under investigation and that the SEC could ban staking services in the US. These rumors materialized, at least, in part, with the SEC’s move to charge the exchange with failing to register the offer and sale of its staking-as-a-service program. Subsequently, Kraken settled with the agency, ending its staking program and agreeing to pay US$30mn in fines. In our view, this represents the US regulators’ appetite to curb the retail use of crypto services, although this investigation targeted Kraken’s staking service only, leaving Coinbase alone, for now.
However, SEC’s decision to attack Kraken was not a consensus inside the agency. SEC’s commissioner Hester Pierce has publicly rebuked the agency over the shutdown of Kraken’s crypto staking program in the US. The commissioner argued that regulation by enforcement is not an efficient or fair way of regulating an emerging industry. Peirce suggested the SEC should have initiated a public debate to develop a registration process to provide valuable information to investors. We think it is positive that this kind of initiative has some resistance inside the SEC, which could prevent it from taking more drastic measures in the future.
This negative news caused Bitcoin price to lose an important support around the mid-US$22k, which could lead to further price drops. If US inflation data to be released on Feb 14 disappoints, there could be a new sell-off of risk assets. Moreover, the scrutiny from regulators, especially in the US, will only increase after the FTX and other collapses and wrongdoings occurred in 2022, which will test the crypto market resilience.
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Therefore, we built a governance level in the crypto market only compared with that of traditional financial institutions.