Analysts from the US-based consulting giant The Motley Fool have listed two imminent dangers that we should be worried about on the market’s largest Bitcoin exchange.
Experts have serious concerns about this Bitcoin exchange!
A recent report by The Motley Fool analyst RJ Fulton says that US-based Bitcoin exchange Coinbase may come under fire over regulatory controversy.
Coinbase’s stock, COIN, which has dropped more than 81% from ATH and has risen more than 88% since the start of 2023, is currently in an odd position in many ways. Taking advantage of the recent rally in the crypto market, Coinbase’s price has increased significantly over the past few months amid positive sentiment among investors.
However, there is reason to believe that there are bumpy and dangerous roads ahead. After a turbulent and controversial 2022 with multiple cryptocurrency companies going bankrupt, US regulators have stepped up the pressure on the crypto industry as a whole. This could be bad news for Coinbase…
Regulators increase the pressure
At the beginning of February, the US regulator SEC reached a settlement with Kraken after it claimed that its staking services met the criteria for unregistered securities. As a result, the exchange had to stop its staking product and pay a $30 million fine.
Today we charged Kraken with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent.
— U.S. Securities and Exchange Commission (@SECGov) February 9, 2023
More recently, the New York Attorney General (NYAG) sued another cryptocurrency exchange, KuCoin. Similar to the SEC-Kraken case, the state of New York claims that KuCoin’s staking products are technically unregistered securities and are therefore currently non-compliant.
New York sues KuCoin, expands cryptocurrency crackdown https://t.co/SuAPukdeiL pic.twitter.com/5qcHtsyHph
— Reuters (@Reuters) March 10, 2023
In addition, NYAG took the claims a step further and claimed that staking products are technically securities, as well as the second most valuable cryptocurrency in the world, Ethereum (ETH), which also meets the criteria for securities.
This is where things can get particularly troubling for Coinbase.
Bitcoin exchange’s staking services may draw further regulatory pressure
Coinbase prioritized building staking services to diversify revenue beyond just transaction fees, aiming to be “the best platform for earning rewards in crypto.” Potentially worse for the stock market were NYAG’s claims that Ethereum is technically a security. If this is judged to be true, it could take a serious toll on Coinbase’s future profits.
This is because there is an Ethereum upgrade planned for 2023 and Coinbase is dependent on cryptocurrency for revenue. The stock market recently expressed its concerns on this issue as well:
6/ Since the Ethereum protocol controls the unstaking process and we’re simply the conduit, we can’t share an exact waiting period when you request to unstake.
— Coinbase (@coinbase) March 15, 2023
The new upgrade, known as Shanghai, will allow those who staked Ethereum to withdraw their funds. Currently, users are unable to do so, and as a result, the number of users staking Ethereum is much lower than other proof-of-stake cryptocurrencies such as Cardano or Solana that allow withdrawals.
Ethereum risks
In a recent report from JP Morgan, analysts found that about 25% of all trading volume on Coinbase is based on Ethereum. The company currently earns around $50 million from customers staking the cryptocurrency. JP Morgan analysts maintained that with Shanghai’s impending promise, Coinbase could increase profits significantly if it leads to a surge in users wanting to use the exchange for their staking needs.
JP Morgan estimates that if 95% of individual investors currently using the platform decide to stake their Ethereum, profits on the low end could rise to $225 million and possibly even $545 million. As Kriptokoin.com, we have included the date set for the Shanghai hard fork in this article.
As a result, if Ethereum is considered a security in the NYAG lawsuit and the SEC decides to focus on Coinbase, it could deal a serious blow to Coinbase’s future revenue growth. Still, Coinbase says it could generate between $250 million and $600 million in incremental staking revenue on its upcoming Ethereum upgrade.
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