Leading exchange Coinbase suffered a marked decline in the value of its shares due to an SEC staking action against a rival exchange.
By Tolu Ajiboye
Updated
3 mins read
The shares of Coinbase (NASDAQ: COIN) dropped 14% amid actions taken by the Securities & Exchange Commission (SEC) against rival exchange Kraken. Coinbase’s shares closed substantially lower after the Commission took a crypto-staking action against fellow American exchange Kraken.
Meanwhile, Coinbase CEO Brian Armstrong had previously expressed concern regarding the dangers of a potential SEC move against crypto staking. In a tweet from yesterday, the Coinbase chief executive officer said:
“We’re hearing rumors that the SEC would like to get rid of crypto staking in the US for retail customers. I hope that’s not the case as I believe it would be a terrible path for the US if that was allowed to happen.”
In a message thread, Armstrong further expounded on the benefits of crypto staking and shed more light on the activity. In the Coinbase CEO’s opinion, staking is not a security but a “really important innovation in crypto.” According to Armstrong:
“[Staking] allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints.”
However, following Armstrong’s concerns on Thursday afternoon, the SEC announced a $30 million settlement with Kraken. In addition, the securities regulator also said that the exchange would shut down its US staking operation as part of the agreement. According to the SEC, Kraken did not register the offer or sale of its crypto asset staking program.
“Whether it’s through staking-as-a-service, lending, or other means, crypto intermediaries, when offering investment contracts in exchange for investors’ tokens,” companies must “provide the proper disclosures and safeguards required by our securities laws,” SEC Chair Gary Gensler explained in a statement.
Needham’s John Todaro commented on the decline in Coinbase shares following the SEC’s decisive move against Kraken. According to him, Coinbase’s stock was trading down primarily due to Armstrong’s comments. Todaro explained that although staking amounts to a small portion of Coinbase’s overall revenue, it is essential in diversifying revenue away from trading. He also said that staking is viewed as a potentially high-growth vertical.
Coinbase operates a staking service called Earn that offers a 6% rate to customers. In the third quarter of last year, the exchange raked in $62 million in revenue from “blockchain rewards.” This respectable sum amounted to 10% of Coinbase’s total revenue of $590.3 million made during that period.
Staking is potentially lucrative for Coinbase, with the exchange charging a 25-35% commission from the rewards that users gain.
Coinbase’s recent share slump is the only noticeable glitch so far for the company, which has enjoyed a rally year-to-date (YTD). Although the leading American crypto exchange is up by more than 77% in 2023, it is still trading 76% lower since the start of 2022. In addition, Coinbase’s stock is changing hands a massive 82% lower since its initial public offering in 2021.
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Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge. When he's not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
