Staking ban is another nail in crypto’s coffin — that’s a good thing

Rumors of an impending crypto ban came to fruition on Feb. 9 with the Securities and Exchange Commission’s enforcement action against Kraken, which resulted in a settlement where the exchange agreed to end its staking services for American users. The action will likely extend to all companies based in the United States.

Reactions were predictable depending on where you stand on crypto in general. Crypto advocates railed against regulators who are slowly asphyxiating this burgeoning industry, while skeptics celebrated crypto’s impending demise. The advocates have it right. Antagonistic regulators will force crypto into friendlier jurisdictions, which will reap the economic benefits. The skeptics have it right, too. This event, and much of those from last year, is killing crypto. Their apparent glee is misplaced, though. This is a good thing.

Emboldened by the slew of blow-ups of crypto businesses in 2022, the SEC and the Commodities Futures Trading Commission have begun to take an increasingly harder line with the crypto industry. They’ve been targeting fiat on-ramps via U.S. banks. They are now targeting staking. Brian Armstrong, CEO of centralized exchange Coinbase, intimated on Feb. 9 that “the SEC would like to get rid of crypto staking in the U.S. for retail customers.” A day later, Kraken announced it would be shuttering its staking-as-a-service program as well as paying a $30-million fine. It now seems likely something akin to a ban on staking will extend to all U.S.-based companies.

Armstrong rightly stated in his tweets that a ban on staking “would be a terrible path for the U.S. if that was allowed to happen.” If U.S. regulators press too hard, they might be responsible for the U.S. ceding ground in the crypto industry to other countries. Better stop now because crypto businesses are already leaving the United States.

1/ We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that’s not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen.

— Brian Armstrong (@brian_armstrong) February 8, 2023

The latest action by the SEC is even drawing criticism from within the SEC. Commissioner Hester Peirce objected to the rashness of this enforcement action, stating that “using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating.” It creates uncertainty and forestalls…