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SEC Crackdown on Crypto Staking Causes Drop in Coinbase Stock

 The Securities and Exchange Commission (SEC) crackdown on crypto staking has sent ripples throughout the cryptocurrency industry and has affected the shares of Coinbase, one of the leading cryptocurrency exchanges. The crackdown came after charges were levied against some of Coinbase's competitors, leading to concerns among investors and a drop in the company's stock. On Friday, shares of Coinbase fell by 4.2% after a 13% drop on Thursday, wiping out roughly half of its year-to-date rally. Despite this, the stock is still up by over 60% in 2023.


One of Coinbase's competitors, Kraken, was the target of the SEC's latest enforcement action. The exchange was required to pay $30 million to settle charges that it offered unregistered securities through its staking program and was forced to shut down its staking program for US customers. The SEC's settlement with Kraken came hours after Coinbase CEO Brian Armstrong warned the public of rumors that the SEC would like to eliminate crypto staking for retail customers in the US.

 The crackdown has also affected the value of Ether and other cryptocurrencies that use staking, such as Cardano and Solana. These cryptocurrencies saw a decline of at least 6% in the last 24 hours, and the total market capitalization of crypto assets has fallen by 4.6% or $49 billion. Staking is an alternative to crypto mining that involves investors putting capital into a protocol’s smart contracts to verify transactions and receive rewards in return.

Coinbase made $63 million, or about 11% of its total revenue, from staking in the third quarter. The company is set to report its fourth-quarter results on February 21st. During the company's third-quarter earnings call, Coinbase CFO Alesia Haas stated that the company's users were increasingly engaging in staking and reward-generating products, due to the reduction in prices and lower crypto price volatility.

Despite the SEC's enforcement action against Kraken and its warning to investors, Coinbase's chief legal officer, Paul Grewal, stated that the company has no plans to shut down its staking program. Grewal argued that Coinbase's program is fundamentally different from Kraken's program and does not meet the criteria of a security under the Howey test. He added that the company's staking program is fully transparent and that they deduct a commission that is disclosed in their terms of service.

SEC Commissioner Hester Pierce expressed her dissent with the enforcement action against Kraken, saying that more transparency around crypto-staking programs might be a good thing, but also acknowledging that staking services are not uniform. In August, Coinbase disclosed that it had received several subpoenas from the SEC for various activities, including related to its staking program. When asked if Coinbase would fight any charges from the SEC directed to its staking program, Grewal stated that it would be premature to say anything until the company faced such charges. However, the company is seeking a more transparent public process for rulemaking for crypto activities and is eager to cooperate and share information about its product services. He added that if and when it becomes necessary, the company would assert its rights under 


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