SEC May Ban Crypto Staking For Retail Customers; Coinbase CEO Reacts

Brian Armstrong, the CEO of Coinbase - a publicly traded company that operates a centralized cryptocurrency exchange - reacted to rumors that the U.S. Securities and Exchange Commission may ban retail investors from staking cryptocurrency.

The rumors about SEC banning crypto staking among retail investors gained traction after the agency's chairman Gary Gensler mentioned that crypto assets allowed for staking options could be classified as securities under the Howey Test.

For the co-founder and CEO of Coinbase, this could be a "terrible path" for the country if the financial regulator lets it happen.

"We're hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers. I hope that's not the case as I believe it would be a terrible path for the U.S. if that was allowed to happen," Armstrong said in a Thursday Twitter thread.

"Staking is a really important innovation in crypto. It allows users to participate directly in running open crypto networks. Staking brings many positive improvements to the space, including scalability, increased security, and reduced carbon footprints," the CEO added, enumerating the benefits of crypto staking.

Armstrong also said that "staking is not a security," referencing a blog post from the crypto investment firm Paradigm on Oct. 5, which noted that Ethereum's transition to proof-of-stake and its staking model does not make it a security.

"We need to make sure that new technologies are encouraged to grow in the US, and not stifled by lack of clear rules. When it comes to financial services and web3, it's a matter of national security that these capabilities be built out in the U.S," the Coinbase CEO further said, noting that "regulation by enforcement doesn't work. It encourages companies to operate offshore, which is what happened with FTX."

Armstrong also said he is hoping that the regulators and the industry could "work together to publish clear rules for the industry, and come up with sensible solutions that protect consumers while preserving innovation and national security interests in the U.S."

The SEC has not yet commented on the issue and it is worth mentioning that there is no official announcement from the financial regulator that it will ban crypto staking among retail investors.

Crypto staking is the process many cryptocurrencies use to verify transactions and allows participants to earn rewards on their holdings.

When staking, holders commit their crypto assets to the exchange to support a blockchain network. Staking is available with crypto assets that use the proof-of-stake model to process payments.