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Cryptocurrencies are starting the week on the wrong foot as U.S. regulators execute a continued effort to stop the industry. Last week, the Securities and Exchange Commission (SEC) shut down exchange Kraken’s staking services. And today, there was news that the New York Department of Financial Services ordered Paxos to stop minting BUSD stablecoins that track the U.S. dollar.
The hardest hit today were tokens that either could come under pressure from staking regulations or other forms of regulator pressure. In the last 24 hours, as of 2:30 p.m. ET, Polkadot (DOT 3.22%) is down 5.4%, Cardano (ADA 1.72%) has fallen 5%, Solana (SOL 7.53%) dropped 7.5%, and BNB (BNB 0.86%) is down 10.1%.
The drop in BNB comes as its stablecoin (BUSD) issuer, Paxos, was ordered to stop minting new tokens. This could cripple its stablecoin efforts and comes after its auditing partner, Mazars, cut ties with the company in December and withdrew a proof-of-reserves report. Given FTX’s recent collapse, investors have to be wondering whether Binance could have similar systemic risks that we can’t see right now.
Solana, Polkadot, and Cardano are blockchains with staking features, and it’s possible they could come under regulatory pressure like Ethereum’s staking.
So far, the SEC’s enforcement has been aimed at exchanges, which it argues should have applied for securities licenses for some of their staking products. But the underlying cryptocurrency being staked is tokens like Polkadot, Cardano, and Solana. So, will the cryptocurrencies themselves come under scrutiny as well? We don’t know.
Regulatory uncertainty isn’t new in crypto, but I would be very concerned about BNB and the Binance exchange. It’s opaque, much like FTX was, and that clearly didn’t end well for investors. We don’t know how the exchange would handle a pressure point like the collapse of a big fund or other exchange, and with auditors quitting on Binance, it’s better to be safe than sorry.
Staking has been key to both blockchain operations and value for cryptocurrencies. But the industry has been operating in a legal gray area for a long time, and the SEC and New York State Department of Financial Services have coordinated efforts to go after the industry. Today, investors don’t think that will work out well.
What investors should think about now is the long-term picture for these tokens. We know that Coinbase‘s CEO, Brian Armstrong, has said he will fight any effort to go after Coinbase’s staking platform, and that may ultimately be where the industry is headed in the U.S. But remember that the point of cryptocurrencies is that they’re a global digital solution, so having fewer users in the U.S. won’t render them valueless overnight.
I tend to be bullish on cryptocurrencies long-term, but this will likely be a choppy year for the industry. Regulators are circling, and not every company will have the funds to fight back. But long-term, there’s a lot of innovation on the blockchain, and that should drive future value for investors.
Travis Hoium has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.
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