The Securities and Exchange Commission sued cryptocurrency exchange Kraken on Monday, the latest move in a U.S. regulatory crackdown on crypto. But this did little to bring down the price of
Bitcoin,
who rallied behind the hope of a friendlier SEC.
The SEC alleged that Kraken operates as an unregistered securities exchange, broker, dealer and clearing agency, earning hundreds of millions of dollars since 2018 by facilitating trading in crypto asset securities. The fees are similar to those the regulator imposed on peer Coinbase Global (ticker: COIN) earlier this year.
The regulator also alleged that Kraken mixed customer funds with its own, including paying operational expenses directly from accounts holding customer cash. This accusation cuts deep into the crypto industry, as allegations of mixing were at the heart of the market collapse of another exchange, FTX, just over a year ago.
“We disagree with the SEC’s complaint against Kraken, remain firm that we do not cotton and plan to vigorously defend our position. The SEC has repeatedly challenged crypto exchanges to come register without a single law supporting their position and no clear path to registration,” Kraken said in a statement.
The exchange pointed out that the bulk of the accusations rest on the broader question of whether digital assets are securities. Regarding commingling, the company clarified that the SEC “cannot and does not claim” that customer funds are missing.
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The price of Bitcoin, meanwhile, remained stable, down less than 1% in the last 24 hours, at $37,250. The largest digital asset remains just below its recent high of nearly $38,000 reached last week, which marks the highest level since cryptos plunged into a brutal bear market in May 2022.
“Despite its solid fluctuation, the rise was suppressed at the psychological level of $38,000,” said Yuya Hasegawa, an analyst at Bitbank. “Bitcoin needs a catalyst to get above $38,000.”
Bitcoin has risen by more than a third since early October, emerging from a months-long period of historically quiet crypto trading, largely on hopes that the SEC will soon approve the first exchange-traded fund (ETF) Bitcoin spot. . Such funds are widely expected to spark a new wave of interest in cryptos from retail and institutional investors, but they will ultimately require the regulator’s green light.
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The SEC’s latest move against Kraken is a sign that regulatory pressures on crypto are far from over. Additionally, the agency’s continued antagonism toward industry players could highlight the risks of Bitcoin’s latest rally, which hinges largely on the prospect of an SEC willing to offer crypto a major victory thanks to the approval of ETFs.
Beyond Bitcoin,
Ether
– the second largest token – lost 1% to $2,000. Smaller cryptocurrencies or altcoins were down, reversing earlier outperformance, with
Cardano
down 4% and
Polygon
plunging 8%. Memecoins were also in the red, with
Dogecoin
down 5% and
Shiba Inu
losing 4%.
Write to Jack Denton at jack.denton@barrons.com
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