Yesterday, the digital asset market entered a slump not seen in weeks. The cause? Primarily, Kraken being issued a $30M fine by the SEC for selling unregistered securities through its staking-as-a-service-program.
The decision to do so was met with disdain across the industry, as it was perceived as yet another example of regulators attempting to stifle the growth of digital assets, presented under the guise of ‘protecting investors’.
Interestingly, in the immediate aftermath, the SEC saw one of its own issue a letter of dissent – Commissioner Hester M. Peirce.
In her letter of dissent, Commission Peirce made it clear that the decision did not reflect her own stance, and believed it to be a lazy path to follow.
“A paternalistic and lazy regulator settles on a solution like the one in this settlement: do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down.” – Commissioner Peirce
Notably, this is not the first time that Commissioner Peirce has issued a letter of dissent stemming from actions of the SEC against digital assets.
No Path Forward
If you listen to participants of the digital asset industry, the adage ‘damned if you do, damned if you don’t’ rings particularly true.
For years now, companies have been stating a need for clearer regulations. Those that attempt to register products and services enter a never-ending limbo, while those that operate in good faith that clarity will be provided are punished with punitive actions.
“Kraken operated a service through which its customers could offer their tokens up for staking. The customers earned returns, and the company earned a fee. The Commission argues that this staking program should have been registered with the SEC as a securities offering. Whether one agrees with that analysis or not, the more fundamental question is whether SEC registration would have been possible.” – Commissioner Peirce
She continues, elaborating on the above by stating that, “In the current climate, crypto-related offerings are not making it through the SEC’s registration pipeline.”
Commissoner Peirce notes that staking is a particularly murky practice that requires clarity by the SEC. Commissioner Peirce poses various questions to highlight this – ‘do staking programs need registered as a whole?’ Or ‘does each token program need registered independently?’
Hard to See the Vision
In a follow up to yesterdays development, SEC Chairman Gary Gensler sat down with CNBC to further discuss the issue at hand. Here he clarified that the fine issued to Kraken was due to its selling of unregistered securities – staking services as a whole were not banned.
“…if they want to offer staking, we’re neutral. Come in, register – because investors need that disclosure.”
For many, the issue is that by continually issuing such enforcement actions against service providers, the SEC is simply forcing citizens of the United States to take their business offshore. The SEC states that this is being done to protect investors within its borders, but by being forced offshore, investors are now left with essentially no protections at all.
Investors do deserve protection. They do deserve disclosures, and assurances that their assets will not be mistreated. However, there is a growing consensus that if companies attempt to register, and are only met with a stalemate, why attempt at all?
Even homegrown, publicly traded, major players like Coinbase echo the need for clear regulations and an actual path forward, making its stance clear in that the system is not working as it stands.
Source: Twitter @brian_armstrong
An Industry Warning
While much of the talk over the past day has revolved around Kraken, SEC Chairman Gary Gensler made it clear that competing platforms have a target on their back. He stated that it doesn’t matter if companies are advertising products under the label staking, earn, yield, or some else – such offerings must be registered.
With this being the case, it should be interesting to see how platforms like Coinbase handle the situation, and if each decides to either attempt registering with the SEC, or simply shutter their respective services in hopes of avoiding hefty fines.
An Unintended Side Effect
Another aspect of these enforcement actions being taken by the SEC that should be interesting to watch, are their effects on Bitcoin.
Consensus mechanisms that involve staking have been pushed heavily over the past few years (by many, including various Senators that view it as being environmentally friendly’). As a result, the majority of the crypto ecosystem is now underpinned by proof-of-stake (PoS).
Part of the appeal behind PoS however, were programs such as the one on offer by Kraken that was just shut down. As this underpinning grew over the past few years, Bitcoin saw its market dominance fall as investors reallocated assets as they searched for passive returns.
Will enforcement actions resulting in the shuttering of such services see Bitcoin regain the market dominance levels it used to boast? Will it rise in value as investors flock towards one of the select few asset known to not be a security?
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