Crypto Crackdown Exposes Internal Battle Within The U.S. SEC

Following the settlement reached by Kraken and its subsidiaries Payward Ventures and Payward Trading with the Securities Exchange Commission (SEC) on February 9, covered by Bitcoinist, Commissioner Hester M. Pierce stated in a report that she disagreed with and dissented with the closure of the crypto exchange’s staking program. 

The regulator argued that this staking program should have been registered with the SEC as a securities offering. SEC Commissioner Pierce, also known as “Crypto Mom,” argues whether or not registration would have been possible in the current crypto-related climate: 

An offering like the staking service at issue here raises a host of complicated questions, including whether the staking program as a whole would be registered or whether each token’s staking program would be separately registered, what the important disclosures would be, and what the accounting implications would be for Kraken.

Solution Or Poor Judgement By The SEC?

The Commissioner stated that the SEC has been aware of the staking programs for an extended period. Thus, she suggests the SEC should have set guidance on the staking programs “long before this situation cracked the way it happened.” The Commissioner added:

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.

Pierce states that using enforcement actions to inform people what the law is in an emerging industry is “not an efficient or fair way to regulate.” For the Commissioner, one-off enforcement actions and “cookie-cutter” analysis do not provide a solution for crypto investors in the US.

Most concerning, though, is that our solution to a registration violation is to shut down entirely a program that has served people well. 

Kraken’s staking program will no longer be available in the United States, registered or not, Kraken is forbidden by the SEC from ever offering a staking service in the U.S. Commissioner Piers calls the recent settlement by the SEC a “paternalistic and lazy regulator that instead of providing a solution, it just shuts it down.” 

The SEC is not the only institution that has taken hostile measures against the crypto industry in recent months. For this reason, the SEC has been dealing with criticism from the U.S. Senate since October 2022, claiming that the SEC chairman has overstepped his authority and taken a hostile stance towards the financial industry.

The SEC has recently experienced an exodus of staff that drew the attention of the Senate, which sent a letter demanding to know why employees are leaving the nation’s corporate watchdog at the highest rate in 10 years.

The letter issued and signed by 12 Republicans of the Senate referenced a public report by the SEC on October 13 from the office of the Inspector General detailing staff attrition and reports of discontent within the SEC.

According to the Inspector General report at the time, the SEC has been losing employees at a high pace in the last ten years. This data and the statements from Commissioner Peirce enforced the idea that there is internal turmoil within the regulator, particularly regarding the crypto industry and how to regulate it. 

The market has reacted to the SEC settlement with Kraken with a retracement in the most prominent cryptocurrencies on the market. Bitcoin is currently trading at $21,600. It has dropped 3.9% in the last 24 hours and 7.8% in the previous seven days. 

Bitcoin lost the critical support level of $22,000 and is set to test the next support level left at $21,500. If it fails to hold the nearest support, it may continue to retreat to the $20,000 area.

Feature Image from Unsplash, chart from TradingView.