The Securities and Exchange Commission sued cryptocurrency exchange Kraken on Monday, the latest move in a U.S. regulatory crackdown on crypto. But it did little to shake the price of
Bitcoin,
which has rallied on hopes of a friendlier SEC.
The SEC alleged that Kraken operates as an unregistered securities exchange, broker, dealer, and clearing agency, making hundreds of millions of dollars since 2018 by facilitating trade in crypto asset securities. The charges are similar to those the regulator levied against peer
Coinbase Global
(ticker: COIN) earlier this year.
The regulator also alleged that Kraken commingled customer funds with its own, including paying operational expenses directly from accounts that hold client cash. This accusation cuts deep in crypto, as allegations over commingling stood at the heart of the market-moving collapse of another exchange, FTX, just more than a year ago.
“We disagree with the SEC’s complaint against Kraken, stand firm in our view that we do not list securities and plan to vigorously defend our position. The SEC has repeatedly challenged crypto exchanges to come in and register without a single law supporting their position and no clear path to registration,” Kraken said in a statement.
The exchange highlighted that the crux of the charges rests on the bigger question of whether digital assets are securities. On the matter of commingling, the company clarified that the SEC “cannot and does not” allege that customer funds are missing.
The price of Bitcoin, meanwhile, was holding steady, down less than 1% over the past 24 hours at $37,250. The largest digital asset remains just shy of its recent peak near $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 upside has been suppressed at the $38,000 psychological level,” said Yuya Hasegawa, an analyst at crypto exchange Bitbank. “Bitcoin needs a catalyst to breach $38,000.”
Bitcoin has rallied by more than one-third since early October—snapping out of a multi-month period of historically calm crypto trading—largely on the back of hopes that the SEC will soon approve the first spot Bitcoin exchange-traded fund (ETF). Such funds are widely expected to usher in a fresh wave of retail and institutional investor interest in cryptos—but ultimately require the green light from the regulator.
The latest move by the SEC against Kraken is a sign that crypto’s regulatory pressures are far from over. Moreover, the agency’s continued antagonism of industry players may highlight risks to Bitcoin’s latest rally, which largely rests on the prospect of an SEC that is willing to deliver crypto a major win through ETF approvals.
Beyond Bitcoin,
Ether
—the second-largest token—lost 1% to $2,000. Smaller cryptos or altcoins were lower, reversing an earlier outperformance, with
Cardano
down 4% and
Polygon
plunging 8%. Memecoins were also in the red, with
Dogecoin
dropping 5% and
Shiba Inu
shedding 4%.
Write to Jack Denton at jack.denton@barrons.com
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