Are Regulators Targeting Crypto Stakes? Rumors suggest new SEC scrutiny

As US regulators continue to crack down on cryptocurrency, rumors are swirling that the next target could be the practice of cryptocurrency betting.

“We’re hearing rumors that the SEC wants to get rid of crypto betting in the US for retail customers,” Coinbase founder and CEO Brian Armstrong tweeted on Wednesday. “I hope that’s not the case, as I think it would be a terrible path for the United States if it were allowed to happen.”

Staking is the process by which users can deposit proof-of-stake tokens into a blockchain to help secure the network, with stakers receiving rewards for doing so.

Following Armstrong’s tweet, at least one other crypto Twitter commentator claimed to have confirmed a multi-agency action against Coinbase. However, this is according to sources close to the matter Decrypt that the claim was unfounded. Paul Grewal, Chief Legal Officer at Coinbase, succinctly said: “Totally fake.”

Following the collapse of FTX in November 2022, the SEC has made cryptocurrency and digital assets a top priority for its 2023 examination division.

“The division will conduct investigations of broker-dealers and RIAs that use new financial technologies or use new practices, including technological and online solutions to meet compliance and marketing requirements and to service investor accounts,” the agency said.

Also on Wednesday, Bloomberg The reported cryptocurrency exchange Kraken is facing an SEC investigation over allegations of offering unregistered securities, a person with knowledge of the matter said.

The SEC and its chairman Gary Gensler have long been accused of regulation by enforcement, which Armstrong and others say will encourage companies to operate offshore. But regulators and politicians like US Senator Elizabeth Warren say the crypto industry is “afraid of a strong SEC,” adding that the agency needs to do even more across the entire crypto market.

“We must ensure that new technologies are encouraged to grow in the United States and not stifled by a lack of clear regulations,” Armstrong wrote. “When it comes to financial services and Web3, it’s a matter of national security that these capabilities are built out in the United States”

In a tweet posted an hour after Armstrong’s initial thread, Coinbase tweeted its support for the strike, saying it has the potential to accelerate the adoption of digital payments globally because it doesn’t rely on setting up expensive centralized intermediaries.

“For the effort to work successfully, it must remain decentralized, neutral and global,” Coinbase wrote.

Other US agencies wading into crypto include the FTC, CFTC, Department of Justice and the IRS, which is being sued by a Tennessee couple seeking to collect federal income taxes imposed on the Tennessee couple’s stake-generated Tezos in 2021.

The lawsuit stems from a Tezos user being denied a refund by the IRS, saying they jointly owed taxes for earning stake rewards.

The lawsuit was dropped on Tuesday by crypto giant ConsenSys, which said it would support the challenge financially.

“Hopefully,” Armstrong wrote. “We can work together to promulgate clear rules for the industry, and come up with sensible solutions that protect consumers while safeguarding innovation and the national security interests of the United States.”