Commissioner Peirce Disagrees with SEC’s Latest Crypto Staking Crackdown
“I disagree and therefore dissent”, wrote Hester Peirce, an SEC Commissioner, in her “Kraken Down” statement published shortly after her agency announced a settlement with the cryptocurrency exchange. According to Peirce, the SEC is acting like a “paternalistic and lazy regulator” whenever it settles for enforcement instead of developing a workable process for registration.
SEC’s Peirce Disagrees and Dissents With Her Agency’s Actions
On Thursday afternoon, SEC Commissioner Hester Peirce published a statement on her agency’s handling of Kraken’s staking program. According to the Commissioner, the approach detailed by Gary Gensler—the one which uses enforcement action to inform the public on what the law is—is deeply flawed and exposes the Securities and Exchange Commission as a “paternalistic and lazy regulator”.
According to Peirce, the current guidelines are such that it is dubious whether it would have even been possible for Kraken to register its offering due to the host of complicated questions associated—they are “not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it”. Furthermore, the Commissioner believes that the SEC has been aware of crypto staking for long enough that it could have issued clear and workable guidelines and partially accepts responsibility for the lack of such a framework.
We have known about crypto staking programs for a long time. Although it may not have made a difference, I should have called for us to put out guidance on staking long before now. I failed to do that. Instead of taking the path of thinking through staking programs and issuing guidance, we again chose to speak through an enforcement action, purporting to “make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.” Instead, through an enforcement action, we are “mak[ing] clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.” Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.
Coinbase’s Brian Armstrong, who warned that the SEC may be going down a “terrible path” when it comes to crypto staking on Wednesday afternoon, wholeheartedly agreed with the Commissioner’s assessment. This is not the first time Peirce has been critical of US’ handling of cryptocurrencies and stated that the country “has dropped the ball” on digital asset regulation already in May 2022.
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Kraken Settles With the SEC and Paxos Gets Investigated by New York
Peirce’s criticism comes as a response to SEC’s enforcement action against the cryptocurrency exchange Kraken. The Commission charged two of the company’s subsidiaries with violating the Securities Act of 1933 and, in response, Kraken decided to settle with the regulator.
The exchange will discontinue its staking program in the US with all tokens other than Ethereum getting automatically unstaked and ETH awaiting the same fate after its Shanghai update. While the settlement effectively bars Kraken’s two affected subsidiaries from offering crypto staking in the US—registered on unregistered—ever again, the exchange stated that its international clientele remains unaffected.
In addition to the Kraken settlement, Thursday saw reports of a New York Department of Financial Services (NYDFS) investigation of Paxos, one of the leading stablecoin issuers. While the exact scope and severity of the probe are not known at the time of writing, it is notable that the news comes just hours after Paxos denied the rumors it had been asked by the Office of the Comptroller of the Currency to withdraw its application for a full banking charter.
Crypto Markets Reel Under Regulatory Pressure
The crypto markets quickly responded to the news of investigations and enforcement actions. By Thursday afternoon, most major cryptocurrencies and digital assets-related stock saw a noteworthy decline in price. Coinbase’s stock, for example, closed down 14%—and stood at $59.63—and kept declining, albeit very slightly, in after-hours trading.
it is important to note, however, that the company’s shares started their decline already at the beginning of the day—likely affected by Armstrong’s Wednesday Twitter thread. Furthermore, the company stated its own staking service remains unaffected by SEC’s settlement with Kraken.
Bitcoin and Ethereum, however, saw a notable decline after the enforcement action was revealed. Both cryptocurrencies traded around their three-week lows at the time of writing—$21,840 and $1,544 respectively—after declining nearly 5% and more than 6% respectively. On the other hand, both ETH and BTC are still in the green by about 30% YTD after the recent rally that saw one of the best Januaries in a decade for the world’s largest cryptocurrency.
Editorial note (February 10th, 2023, 12:00 PM EST): Headline was updated for clarity.
Do you think pushback from people like Hester Perice could make Gensler and other regulators reconsider their aggressive approach to cryptocurrencies? Let us know in the comments below.