- Coinbase Chief Legal Officer Paul Grewal decried regulation by enforcement, calling staking "a safe and critical aspect of blockchain".
- Grewal stated that staking does not fall under the category of security either by the rules of the US Securities Act or the Howey test.
- COIN price plunged by 30% in a week, invalidating part of its 142% rally since the beginning of the year.
Coinbase is the second biggest cryptocurrency exchange in the world in terms of trading volume processed daily. Even so, the Securities and Exchange Commission (SEC) has been at heads with the crypto company. However, the highest impact on Coinbase came this week following the regulators' attack on staking services in the crypto space.
Coinbase says staking, not security
Coinbase Chief Legal Officer Paul Grewal, in a blog post on Friday, brought forward the reasons why staking in no way falls under the category of securities and why the SEC should lay off it. According to Grewal, staking stands apart from securities due to its nature of processing information. The executive noted,
"The purpose of securities law is to correct for imbalances in information. But there is no imbalance of information in staking, as all participants are connected on the blockchain and are able to validate transactions through a community of users with equal access to the same information."
Grewal went on to state that attempting to impose securities law onto such a process would only drive US consumers to offshore, unregulated platforms. According to Coinbase, this is because staking does not fall under the Securities category either by US Securities Act or the Howey test.
The Howey test is used by SEC to determine the validity of an investment vehicle as a Security, which has been in place for nearly 77 years. Grewal further justified Coinbase standing on staking, saying,
"staking services do not pay rewards based on the "efforts of others." Service providers' staking services are not entrepreneurial, managerial, or a significant factor in whether customers receive staking rewards or the amount of rewards received."
Coinbase further stated that sensible regulation in the United States is supported by the company. However, regulation by enforcement is not helpful, especially now that the SEC is potentially targeting staking.
The staking concerns arose over the last few days after the SEC fined crypto exchange Kraken $30 million and shut down its staking services offering due to lack of registration. This ensued panic in the crypto industry as consumers feared that the SEC might be coming after staking now.
COIN price goes down
This was reflected in Coinbase's share price as well, following a nearly 30% decline in value in the last few days. Most of this shrink came in the last 48 hours as COIN fell by 15% to trade at $57.09.
COIN share price
Despite being a stock, COIN moved in tandem with the crypto market as the value of the share fluctuated accordingly. This led to the crypto exchange company registering a 142.44% rally in the span of a month since the beginning of the year. An increase in fear could significantly impact the value of the asset, resulting in further invalidation of its 142% recovery.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.