Following the proceedings that the Securities and Exchange Commission (SEC) took against competing crypto currency exchange Kraken, the price of Coinbase's shares fell by 14%. Kraken is another American crypto currency exchange.
Coinbase CEO Voiced Concerns on SEC Action on Staking Services
In the meantime, the CEO of Coinbase, Brian Armstrong, has previously voiced worry over the possible risks associated with a move against crypto currency staking by the SEC. The chief executive officer of Coinbase stated the following in a tweet (1) from yesterday:
"Reports are circulating that the SEC wants to do away with cryptocurrency staking for retail users in the United States. I sincerely believe that is not the case because it would put the United States on a course that would be extremely detrimental to its future."
Within the context of a discussion thread, Armstrong elaborated more on the merits of crypto currency staking and provided additional insight into the practice. Staking, in the view of the CEO of Coinbase, does not constitute security but rather a "very important breakthrough in crypto." The following is what Armstrong claims:
"Scalability, greater security, and decreased carbon footprints are just a few of the numerous benefits brought to the sector by Staking."
However, as a result of the concerns raised by Armstrong on Thursday evening, the SEC announced a settlement with Kraken of $30 million. In addition, the securities watchdog stated that the exchange would terminate its staking activity in the United States as part of the deal.
The SEC claims that Kraken did not declare the offer or sale of its crypto currency asset staking program.
Following the definitive action that the SEC took against Kraken, Needham's John Todaro remarked on the decrease in Coinbase's share price. According to him, Armstrong's statements were the primary reason for the decline in trading activity for Coinbase's shares.
Todaro stated that Staking makes up a small fraction of Coinbase's overall revenue, yet, it is vital to the company's efforts to diversify its revenue streams beyond trading. In addition to that, he mentioned that Staking is thought of as a potentially high-growth area.
Staking Service Provided by Coinbase
Customers may participate in a staking program run by Coinbase called Earn, which pays out at a rate of 6% per month. The crypto currency exchange generated $62 million in income from "blockchain incentives" during the previous year's third quarter.
This impressive number represented 10% of Coinbase's overall income at that period, which was $590.3 million.
Coinbase can generate revenue through Staking since the exchange takes a fee of 25–35 percent of the incentives that its customers earn.
The latest drop in Coinbase's share price is the first significant stumble the business has had, as it otherwise experienced a climb so far in 2018.
Even though the main American crypto currency exchange has gained more than 77% so far in 2023, its trading price is still 76% lower than at the beginning of 2022.
In addition, the price at which Coinbase's shares are traded has dropped by an astounding 82% since the company's first public offering in 2021.