The crypto market is experiencing a downturn. After successful green signals during the week, the prices crashed again due to various reasons.
Bitcoin, Ether, and altcoins corrected after Fed FOMC minutes hinted at further interest rate hikes if high inflation persists.
Another factor was the regulatory aspect. Recently, the United States Securities and Exchange Commission (SEC) increased regulatory enforcement. This led to massive crypto outflows, with investors concerned about the strict actions against the crypto industry.
SEC probe CEXs
The regulator has been investigating various centralized exchanges offering staking-as-a-service such as Paxos and Binance. The SEC recently charged Kraken with
“failing to register the offer and sale of their crypto-asset staking-as-a-service program,”
As a result, Kraken agreed to cease operations for its earning program. Nexo also recently decided to end its centralized staking program.
Coinbase CEO Brian Armstrong has vowed to fight the action if brought to court.
The regulators also issued notice to Paxos, a stablecoin issuer, claiming that BUSD is an unregistered security. Following the SEC announcement, New York regulators ordered Paxos to stop issuing BUSD, which is the third-largest stablecoin in the crypto market.
Binance has stated they intend to continue supporting BUSD despite the order against Paxos. American lawyers believe the securities argument against BUSD is complicated due to potential profit from arbitrage, hedging, and staking opportunities.
Finally, the lack of clarity and transparency on how centralized exchanges (CEX) can use customer funds has also weighed on growth and innovation within the sector.
The Financial Stability Board (FSB) believes that many stablecoins will fall short of meeting forthcoming onerous regulations. The Commodity Futures Trading Commission (CFTC) has also called for clearer regulation, but the pace of these changes is unknown.
All these factors have caused uncertainty and volatility in the crypto market, leading to the recent downturn. While some decentralized staking protocols may benefit from the recent enforcement action, the crypto regulatory environment is still unclear, and uncertainty often leads to market volatility.