By Sam Boughedda
JMP Securities analysts told investors in a note Friday that the firm believes the recent SEC crackdown on Staking-as-a-Service could see Coinbase (NASDAQ:COIN) face similar challenges.
On Thursday, the SEC and Kraken, one of the largest crypto exchanges globally, announced a settlement under which Kraken agreed to discontinue its staking-as-a-service program in the U.S. and pay a $30 million fine.
The analysts explained that the settlement of the SEC complaint, which alleged that Kraken's staking-as-a-service program constituted the unregistered offer and sale of securities, came a little less than 24 hours after a Twitter thread from Coinbase CEO Brian Armstrong, which ignited rumors in the market that the SEC "would like to get rid of crypto staking in the U.S. for retail customers."
"While this theme had already been in the market as an area of SEC focus (just one of many overhangs for the space), the specificity of the recent rumors, and ultimate SEC action, had a chilling effect on crypto-related stocks and assets," the analysts wrote. "Coinbase shares fell 14% yesterday, we believe based on a readthrough that the company's staking service could face similar challenges."
Coinbase shares are down a further 5% so far on Friday.
They acknowledged that it is still too early to understand the full implications of yesterday's events on the broader market, but the firm's general takeaway is that the settlement and the controversy surrounding this topic "underscore a broader overarching regulatory uncertainty that has weighed on the industry and related stocks."
"While Coinbase does not seem to see an immediate threat to its Earn program as a result of yesterday's settlement, our sense is that the market believes yesterday's SEC action is not a one-off event. Accordingly, the bigger question for Coinbase and its peers moving forward will be around what other products and services the agency may seek to regulate next, with near-term headline uncertainty spooking investors," the analysts stated.