Notes 2/10: Crypto Staking’s Future, Bitcoin Price

The SEC’s regulatory blow to Kraken yesterday and Chairman Gary Gensler’s warning this morning on CNBC have fed into speculation that cryptocurrency staking, one of the most lucrative corners of crypto, is facing an existential threat.

But it might be a bit much to extrapolate from the SEC’s actions yesterday.

Terms of Service Red Flags

Kraken’s terms of service for its staking service had red flags all over it. Consider this sentence: Payward Commercial Ltd. shall remit to you the applicable percentage of staking rewards received from the Supported Token Protocol attributable to your staked Supportable Token.

The exchange assigned to itself the task of calculating the applicable percentage of staking rewards and the timing for remitting it. It also provided no guarantees for staking rewards or the applicable percentage, claiming that the latter was an estimate and not final. As I mentioned yesterday, Kraken’s decision to take a cut of the overall staking rewards, while advertising mouth-watering rates, was what set the agency off.

Essentially, the company was an intermediary between the protocol layer that generated rewards and the final customer. It was promising profits to potential investors without making adequate disclosures about the rewards it received from the protocol layers for staking.

Coinbase and Lido Finance

Contrast this with the terms of service for Coinbase. Rewards are determined by the protocols of the applicable network…Rewards will be credited to your account by taking into account the amount of your principal and previously accrued rewards that remain staked with Coinbase.

Meanwhile, Lido Finance, a decentralized finance (DeFi) platform that also holds the biggest stake of Ethereum tokens, has an even more spare user agreement that does not make any mention of rewards. [That might become a problem in the future since Lido is unregulated and has a governance token that has shown appreciable gains.]

On Bloomberg this morning, Chairman Gensler clarified that “facts and circumstances matter” and make a difference in such cases. This means that the existential danger for cryptocurrencies may not exist for now. It also means that, as usual, the agency is holding its cards close to its chest.

Bitcoin Price Falls

Bitcoin price fell below $22,000 in response to news of the SEC action. As of this writing, it is changing hands at $21,580.90, down by 1% from its price a day earlier. The price of Ethereum, the world’s most staked token, is down by roughly 10% from yesterday morning. As of this writing, it is changing hands at $1,515.39. There was a time when the cryptocurrency’s price remained impervious to regulatory action. That doesn’t seem to be the case any longer.

Bilal Little, co-founder of DFD Partners, told CoinDesk this morning that bitcoin was poised for a “slight bull cycle” in its markets. He pointed to the increase in bitcoin non-zero wallet addresses and enthusiasm by financial advisors, who intend to put money into bitcoin this year, as tailwinds that will propel bitcoin’s price rise this year.

A Continued Bear Cycle?

But an increase in the number of wallets is hardly a guarantee of mainstream adoption. It is easy to create multiple wallets on a blockchain for existing holders of the cryptocurrency and spread their holdings across many venues.

The broad picture for crypto also remains murky, with investors and traders holding their breath in anticipation of another possible crash. The SEC’s latest action has further dented investor confidence in its ecosystem. Finally, the macroeconomic fundamentals that have affected bitcoin price are also shaky as demonstrated by news of increased hiring that followed the Fed’s announcement of a quarter percentage point increase.  

A bull cycle may not happen anytime soon for bitcoin price.

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