Coinbase shares fall as SEC takes crypto action against Kraken
- Coinbase shares closed down 14% after an SEC action against rival exchange Kraken in connection with the betting program.
- Investors also reacted to comments from CEO Brian Armstrong about the dangers of potential SEC action against crypto efforts.
- Coinbase shares have seen a significant rally so far this year, but are still down for the day, week and since Coinbase’s 2021 IPO.
Brian Armstrong, co-founder and CEO of Coinbase Inc., speaks during the Singapore Fintech Festival, in Singapore, on Friday 4 November 2022.
Bryan van der Beek | Bloomberg | Getty Images
Coinbase shares closed up more than 14% on Thursday, after CEO Brian Armstrong expressed concern over rumors that the Securities and Exchange Commission was mulling new enforcement action against crypto efforts.
Those rumors coalesced Thursday afternoon, when the SEC announced a settlement with Coinbase’s rival crypto exchange, Kraken. The SEC alleged that Kraken had engaged in unregistered offers and sales of securities through its crypto betting platform.
Many centralized exchanges, including Coinbase, offer customers the opportunity to stake their tokens to earn a return on their digital assets that would otherwise sit unused on the platform. With crypto stakes, investors typically vault their crypto assets with a blockchain validator, which verifies the accuracy of transactions on the blockchain. Investors can receive additional crypto tokens as a reward for locking these assets.
Coinbase has a staking service called Earn that currently offers 6% interest to customers. The company recorded $62 million in “blockchain rewards” revenue for the three months ending September 30, 2022, roughly 10% of its $590.3 million in total revenue for that time period. It’s a potentially lucrative revenue stream for Coinbase, which charges a staking commission ranging from 25-35% of the rewards that users receive from staking crypto.
Armstrong tweeted the night before the Kraken action to express his concern about a “terrible path” the SEC would follow if it classified crypto stakes as a security.
“We are hearing rumors that the SEC wants to get rid of crypto staking in the US for retail clients. I hope that is not the case,” Armstrong wrote Wednesday night.
“When it comes to financial services and web3, it is a matter of national security that these capabilities are built out in the US,” Armstrong tweeted.
Thursday’s selloff comes after a positive uptick so far this year for Coinbase and significant turmoil for the crypto industry at large. Coinbase is up over 77% in 2023, but is down over 76% since the start of 2022 and down over 82% since its 2021 IPO.
Coinbase reports earnings for the fourth quarter of 2022 after the clock on February 21.
