Coinbase Shares Plunge as SEC Takes Cryptocurrency Action Against Kraken

Brian Armstrong, co-founder and chief executive officer of Coinbase Inc., speaks during the Singapore Fintech Festival in Singapore on Friday, Nov. 4, 2022.

Brian van der Beek | Bloomberg | Getty Images

coinbase Shares plunged more than 14% on Thursday after CEO Brian Armstrong expressed concern over rumors that the Securities and Exchange Commission is taking new enforcement actions against the cryptocurrency giant.

Those rumors coalesced on Thursday afternoon, when the SEC announces a settlement Coinbase’s rival crypto exchange, along with Kraken. The SEC alleged that Kraken engaged in an unregistered offering and sale of securities through its crypto staking platform.

Many centralized exchanges, including Coinbase, offer customers the option of staking their tokens to earn a yield on their digital assets that would otherwise sit idle on the platform. With crypto staking, investors typically vault their crypto assets with a blockchain validator, which verifies the accuracy of transactions on the blockchain. Investors can receive additional crypto tokens as a reward for closing those assets.

Coinbase has a staking service called Earn that currently offers 6% interest rates to customers. The company reported $62 million in revenue from “blockchain rewards” for the three months ending September 30, 2022, which accounted for nearly 10% of its $590.3 million in total revenue for that time period. This is a potentially lucrative revenue stream for Coinbase, which charges a commission ranging from 25-35% of the rewards users receive for staking their crypto.

Armstrong tweeted the night before Kraken’s action to express his concern over a “terrible path” he would follow if the SEC classified cryptocurrencies as a security.

“We’re hearing rumors that the SEC is looking to get rid of crypto in the US for retail customers. I hope that’s not the case,” Armstrong wrote Wednesday night.

“When it comes to financial services and Web 3, it is a matter of national security to build these capabilities in the US,” Armstrong tweeted.

Thursday’s sell-off comes after a positive year-to-date rally for Coinbase and significant upheaval for the crypto industry at large. Coinbase is up more than 77% in 2023 but is down more than 76% since the start of 2022 and down more than 82% since its 2021 IPO.

Coinbase reports Q4 2022 earnings after the bell on February 21.

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