Notes 6/5: Bitcoin Price Crashes after SEC Filing Against Binance, Ethereum Staking

The end times are nearing for cryptocurrencies.

The Securities and Exchange Commission (SEC) filed a case against, the crypto world’s biggest exchange by trading volume, this morning. In response, crypto markets crashed.

The magnitude of Binance’s operations became immediately evident. Bitcoin price, which had stayed above $27,000 over the weekend, fell below $26,000 after news of the filing was made public. As of this writing, the cryptocurrency is $25,642.78, down almost 7% from a day earlier. Ethereum’s ether has fallen by 5% to $1808.93 in the same period. The overall market cap of cryptocurrencies is down by 5.4% to $1.13 trillion in the last 24 hours.

A Laundry List of Charges

The SEC filing contains a long list of charges against Binance, its US subsidiary Binance.US. and Changpeng Zhao or CZ, the exchange’s founder. The agency alleged that Binance engaged in an unregistered sale of securities and evaded US regulatory oversight even as it conducted business in the country. It also stated that Binance misrepresented controls implemented at the exchange to prevent fraud and fake trading volumes.

Specifically, the SEC said BNB, Binance’s native token, and BUSD, its stablecoin, are both securities. It also said Binance commingled customer funds and that BAM Trading. the company behind Binance.US, did not register as a clearing agency with the regulator even though it performed that function. Binance also served US customers without registering as an exchange. CZ is also charged with secretly controlling Binance.US and inflating its trading volume.

Binance Boom to Bust?

The SEC’s list of charges against Binance is not an unforeseen development. The exchange’s high profile coupled and crypto’s increasingly problematic scandals that encroached on mainstream finance made the SEC action today a question of when and not why.

In its filing, the SEC has asked Binance to cease offering unregistered securities. It has also asked for disgorgement and restitution of investors. This means that the agency has not charged the exchange with criminal wrongdoing and used its long regulatory reach to shut down Binance’s global operations.

The SEC’s case against Binance comes at a time when the crypto exchange is attempting to reinvent itself. News reports claim that the recent appointment of Richard Teng, a former regulator at the Monetary Authority of Singapore (MAS), as head of regional markets is a precursor to CZ eventually handing over the reins to him.

Ethereum Staking

The party in Ethereum staking shows no signs of stopping.

The percentage share of overall Ethereum staked at validators has jumped to 18.75%, according to statistics from Dune Analytics. In April, before staking withdrawals commenced, that figure was slightly more than 15%.

Validators situated outside the Beacon chain, Ethereum’s main network, account for a substantial chunk of staked ether. As of this writing, they have added 3.09 million to the total figure of staked ether based on a comparison of numbers from Dune and Beacon Chain.

Why the rush to stake by investors?

One reason is the rewards bounty that has characterized Ethereum’s staking program since the Shapella upgrade. Yields on the platform topped 8.6% last month on the back of meme coin hysteria. Rewarded ether, or ether that was handed out as rewards to validators for assembling transaction blocks, accounted for 1.1 million of the 4 million ether staked since the upgrade. Again, data from Dune analytics shows that fewer than 100,000 validators, out of more than 698,000, were responsible for more than 13% of ether handed out as rewards.

Boosting Rewards

Looking closely at data from Dune analytics, investors gravitate towards venues that offer high rewards. The biggest inflows last week occurred at staking platform Figment. On its website, Figment advertises itself as an enterprise-grade staking platform that works with major players like Binance.US and Anchorage Digital. Apparently, enterprise-grade platforms can also boost yields. Right now, the Ethereum store is advertising an annual percentage rate (APR) of 4.665% for ether staking. Figment, meanwhile, has upped Ethereum itself and is offering 4.93% APR for staked ether.

On its guide to institutional staking page, the platform states that “Ethereum is one of only a few networks where token holders benefit from MEV-Boost to earn additional rewards.” What it doesn’t mention is that MEVs are the crypto equivalent of front running in mainstream markets and a regulatory red flag for the blockchain’s future operations. Figment, of course, isn’t the only platform involved in this egregious deception. Lido, the biggest staking platform for ether, has frequently advertised rates over and above those available on the blockchain itself.

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