First Mover Asia: Kraken Crypto Staking Settlement Bedevils Markets as Bitcoin Lingers Below $21.9K

A Kraken Settlement, Fresh Regulatory Concerns and a Crypto Decline

So much for $24,000. Or $23,000.

Over a 24-hour period that raised fresh concerns about the future of crypto regulation, bitcoin tumbled to $21,827, a more than 5% drop that sent the largest cryptocurrency to its lowest level in about two weeks. Much of the decline came after crypto exchange Kraken agreed to “immediately” end its crypto staking-as-a-service platform for U.S. customers and pay $30 million to settle Securities and Exchange Commission (SEC) charges it offered unregistered securities.

“Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair and truthful disclosure and investor protection,” SEC Chair Gary Gensler said of the settlement.

In an interview with CoinDesk TV, Brett Sifling, an investment adviser at wealth management firm Gerber Kawasaki, highlighted the need for improved regulation to help “crypto truly to go to the next level.”

“Innovation has outpaced the legislation that our government has put forward,” Sifling said. “We need some blood, some sign of trust that our government is going to back us and that there isn’t just going to be the Wild West out there with a bunch of criminals in the industry, because it ultimately hurts the common person.”

He added: “If we want wide-scale adoption, we need to have these rules in place so that we can ultimately build and have confidence putting investments into the market and knowing that they’re not gonna disappear one day when you wake up.”

Ether, the second largest crypto by market cap, behaved similarly, dropping from its previous support comfortably above $1,600 to about $1,546, a 6.6% decline from Wednesday same time, that was part of a wider market downswing. The drop-off after a five-week spike began after Coinbase CEO Brian Armstrong tweeted Wednesday that his firm had heard rumors the SEC wanted to ban retail investors from engaging in crypto staking, the income-generating technique at the core of running blockchains including Ethereum.

Most other cryptos spent the day in solidly negative territory, although liquidity staking tokens were exceptions as LDO, the governance token of Lido Finance, the largest liquid staking protocol with some $8.4 billion of staked ether (ETH) on the platform, jumping 10.4% in an hour at one point. LDO was more recently up about 2%. LDO competitor Rocket Pool’s RPL and smaller liquid staking platform’s tokens such as Persistence’s pSTAKE and StaFi’s FIS all rose handsomely in the aftermath of the Kraken announcement.

Equity markets unaffected by the crypto news fell more gently with the tech-heavy Nasdaq and S&P 500, which has a strong technology component, each dropping about 1%. Investors had sent stocks higher earlier in the day after an encouraging increase in weekly jobless claims suggested that the hot job market might finally be cooling and that the U.S. central bank’s monetary aggressiveness was working to staunch inflation. Job figures have remained stubbornly positive for months even as other indicators have suggested an economic contraction that historically leads to lower prices.

Gerber Kawasaki’s Sifling was cautiously optimistic about crypto’s path ahead, noting that bitcoin had been trading in a narrow range for months. “Crypto has had a great run this year. Inflation is decelerating. The macro factors are improving. But it’s still really been range bound, since August. I wouldn’t get too excited yet until we come out of this range.”

Insights

Whale Investors Sending More Bitcoin to Exchanges

Bitcoin “Whales,” investors who hold over 1,000 BTC, are beginning to move bitcoin back onto centralized exchanges.

The trend comes even as on-chain activity shows that smaller investors are removing BTC from exchanges.

As coin movement from exchanges is generally bullish, while the opposite is bearish, one interpretation is that both larger and smaller investors are wrong about which way the market is headed with the former too downcast and the latter overly optimistic.

The other interpretation, however, is that whales are simply managing their downside risk because they have more to potentially lose. Regardless, many market observers will likely continue to eye the trend.

Important events.

CoinDesk TV

In case you missed it, here is the most recent episode of “First Mover” on CoinDesk TV:

Bitcoin exchange LocalBitcoins is set to discontinue its service this month in response to the “ongoing very cold crypto winter.” Okcoin Chief Operating Officer Jason Lau shared his crypto markets analysis. Plus, Enclave Markets General Counsel Olta Andoni weighed in after a nine-person jury in the copyright infringement trial between Hèrmes and non-fungible token (NFT) artist Mason Rothschild ruled in favor of the French luxury brand. SALT Lending CEO Shawn Owen also joined the conversation, as the crypto lender raises $64.4M to resume operations.

Headlines

Kraken to Shut Crypto-Staking Service, Pay $30M Fine in SEC Settlement: Announcement from SEC confirms a CoinDesk scoop from earlier Thursday.

Bitcoin Punks: Ordinal NFT Collection Soars in Value: Late Wednesday, one Ordinal Punk NFT minted on the Bitcoin-native Ordinals Protocol sold for 9.5 BTC, roughly $214,000.

Three Arrows Capital Founders Launch Exchange Where You Can Trade 3AC Bankruptcy Claims: Named Open Exchange, the platform aims to be a home for trading what it says is a $20 billion market of claims against bankrupt crypto firms, including those of 3AC.

DeFi Giant MakerDAO Integrates Blockchain Data Provider Chainlink for DAI Stablecoin: Chainlink Automation will run specific tasks, including price updates and liquidity balancing, to help maintain the stability of Maker’s $5 billion DAI stablecoin.

Aave Deploys Native Stablecoin GHO on Ethereum Testnet: GHO joins an increasingly competitive space as rival DeFi protocols also issue or are moving to release their own protocol-native stablecoins.

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