In a recent development that underscores the evolving landscape of cryptocurrency regulations in the United States, Bitstamp, one of the world’s leading cryptocurrency exchanges, has announced that it will cease its ether (ETH) staking services for US-based customers by September 25, 2023.
Bitstamp’s decision: A closer Look
Bitstamp’s decision to end its ETH staking services for US customers was communicated through an official statement emailed to Blockworks. The statement, penned by Bitstamp US CEO Bobby Zagotta, highlighted that the move was a direct consequence of the prevailing regulatory environment in the US.
Zagotta stated, “As a result, US customers will stop receiving staking rewards. All other Bitstamp services will remain unaffected.” He further clarified that customers would continue to earn staking rewards up until the specified date. After September 25, all staked assets will undergo the unstaking process. The rewards, along with the principal amount, will then be credited to the main Bitstamp account balances of users. While this process typically spans a few days, it might take longer depending on the prevailing network conditions.
The regulatory landscape and its implications
The decision by Bitstamp is not an isolated incident but rather a reflection of the broader challenges cryptocurrency exchanges face in the US. The regulatory environment, especially concerning staking services, has been a contentious issue. Zagotta emphasized Bitstamp’s commitment to adhering to regulations, noting, “as one of the most regulated and trusted exchanges in the world, we have a comprehensive framework in place to continuously evaluate the services we support, taking into account the evolving regulatory environment in all jurisdictions in which we operate.”
The US Securities and Exchange Commission (SEC) has been particularly active in scrutinizing staking services. The SEC’s stance is that staking programs can be classified as investment contracts under the Howey test, a precedent used to determine whether certain transactions qualify as “investment contracts.” If they do, they are subject to specific regulations.
The SEC’s aggressive approach was evident in its legal actions against major exchanges like Coinbase and Binance. In its lawsuit against Coinbase, the SEC stated, “At all relevant times, the Coinbase Staking Program, as it applied to each of the five stakeable assets, was an investment contract under Howey, and therefore a security, whose offers and sales were subject to registration under the Securities Act.”
Furthermore, the SEC’s concerns were echoed by multiple states that targeted Coinbase’s staking program. A notable example is Alabama, which raised alarms over the lack of protection for investors. The state pointed out that the “3.5 million staking rewards program accounts nationwide are not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).”
Other exchanges and their stances
Bitstamp is not the first exchange to recalibrate its services in light of the regulatory challenges. Earlier in the year, the SEC reached a settlement with Kraken, another prominent cryptocurrency exchange, over its staking products. Following this, Kraken informed Blockworks of its decision to “end its on-chain staking services for US clients only.” The exchange further clarified that assets enrolled in the on-chain staking program by US clients would be automatically unstaked, and these clients would no longer be eligible to earn staking rewards. Moreover, they would not be able to stake additional assets, including ETH.
Conclusion
The decision by Bitstamp, and similar moves by other exchanges, underscores the complexities of navigating the cryptocurrency space in the US. As regulators grapple with the challenges and implications of decentralized finance and its offerings, exchanges are left to continuously adapt to ensure compliance. For US-based crypto enthusiasts, the landscape is rapidly changing, and it remains to be seen how these regulatory shifts will shape the future of cryptocurrency staking and other related services in the country.
