The crypto industry fears a betting ban, and some are turning to bitcoin
Some participants in the crypto industry are concerned that a charge brought by the US Securities and Exchange Commission against the crypto exchange Kraken could lead to a ban on betting on digital assets.
On Thursday, the SEC accused Kraken of failing to register its betting program as securities. Kraken has ended its enforcement program in the United States and agreed to pay $30 million to settle the allegations, without admitting or denying the allegations, according to a statement Thursday.
“Starting today, with the exception of fenced ether, assets registered in the on-chain staking program by US customers will automatically be unstaked and will no longer earn staking rewards. Furthermore, US customers will not be able to stake additional assets, including ETH,” a Kraken spokesperson said in an emailed statement.
Staking, which allows users to earn rewards by using their existing holdings of tokens to verify transactions, is a feature of proof-of-stake blockchains, such as Ethereum
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Solana
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Cardano
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Polygon
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and Cosmos. Bitcoin
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on the other hand, operates on another mechanism called a proof-of-work system, where so-called miners solve complicated mathematical puzzles to secure the blockchain and obtain rewards. Proof-of-stake blockchains are typically much more energy efficient than their proof-of-work counterparts.
Many major crypto exchanges, such as Binance and Coinbase
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offers staking services, where they provide custody for users’ cryptocurrencies and stake them. Some decentralized staking service providers, such as Lido Finance, allow users to hedge their own cryptocurrencies while participating in staking.
Market participants await further action from regulators, as it is unclear whether the SEC will target only centralized betting services like Kraken, or ban staking in any form in the US
If the SEC targets centralized betting providers, it could push users to flock to decentralized betting services, according to Francesco Melpignano, CEO of Kadena Eco.
But if regulators issue a blanket ban on stakes, it could be “a big hit” to proof-of-stake blockchains, depending on the level of decentralization of those networks, particularly on how many users are US-based, Melpignano told MarketWatch in a conversation.
Others may turn to bitcoin and its proof-of-work system. “Bitcoin has always been on the safe side of regulation,” Melpignano said. SEC Chairman Gary Gensler has said bitcoin is the only cryptocurrency he is prepared to publicly label a commodity.
Still, bitcoin, the largest cryptocurrency, fell more than 5% on Thursday to a three-week low.
Indeed, staking services can be an important source of income for many crypto exchanges. Coinbase recorded $62 million in revenue, or more than 10% of its total revenue, from “blockchain rewards” for the three months ended September 30, 2022. Coinbase takes a commission fee of up to 35% of rewards that users earn by to stake their crypto.
Coinbase CEO Brian Armstrong tweeted on Wednesday that it would be a “terrible road for the US” if the SEC decides to ban crypto betting for retail customers.
Coinbase shares closed down more than 14% Thursday at around $59.63, according to Dow Jones Market Data.
Representatives at Coinbase and the SEC did not immediately respond to requests for comment.
Some argued that the SEC’s move would drive crypto betting out of the US
“What [SEC chief] Gary [Gensler] doesn’t understand is crypto efforts will march on globally, decentralized and offshore, and his meddling hands will now have even less say in the matter,” Chris Burniske, partner at Placeholder VC, wrote in a Thursday tweet.
“Today’s settlement is not law, but is another example of why we need Congress — not regulators — to determine appropriate legislation for this new technology,” Kristin Smith, executive director of the lobby group Blockchain Association, said in an emailed statement. “Otherwise, the US risks driving innovation offshore and taking online freedoms away from individual users,” she said.
