Bitcoin Shaken by Crypto Staking Crackdown

Despite a new all-time high in use of Bitcoin’s Lightning Network, US regulation put the brakes on bullish momentum last week. 

A crackdown on staking services unnerved investors but may prove to have limited implications.

Elsewhere, Ethereum developers confirmed good progress was being made towards enabling ETH staking withdrawals by March – a game-changing update according to JPMorgan. 

• Bitcoin tumbles despite Lightning Network use hitting an all-time high
• SEC creates uncertainty regarding crypto staking 
• Ethereum moves one step closer to Shanghai upgrade as JP Morgan weighs in

Bitcoin down despite Lightning Network’s all-time high

Bitcoin’s bullish momentum hit an interlude last week, as crypto markets ended the week in the red for the first time in 2023.

Although falling early in the week, bitcoin’s price accelerated lower on Thursday as news regarding a US crackdown on crypto staking services caused mild panic among investors. 

As investors evaluated this new uncertainty dynamic, bitcoin’s price fell through a critical area of daily support at $22,400 and went on to reach a weekly low of $21,400. 

As a Proof-of-Stake network directly impacted by an attack on US staking services, the price of Ethereum faced a similar fate. The coin fell to a weekly low of $1,490 and was down over 6% for the week.

Unfortunately, the fear, doubt, and uncertainty of US regulation were too great to offset the more promising news that Bitcoin’s layer-2 Lightning payment network recorded a new all-time high. 

The number of BTC locked within Lightning payment channels has been continually growing. According to data collected by The Block Research, Lightning’s payment capacity has increased by 63% since the start of 2022 – rising from 3,350 BTC on January 1st, 2022 to 5,510 BTC on February 11, 2023. 

The second network layer is designed to enable fast and cheap bitcoin micropayments, therefore, an increase in BTC capacity on the network is an incredibly positive sign for adoption. 

Investors now look ahead to Tuesday for the next piece of, potentially, market-altering macroeconomic news. On Tues Feb 14th, the US will release January’s CPI results, which may determine if bitcoin and the remainder of the crypto market see a third consecutive red week.

Bitcoin’s Lightning network capacity reaches a new all-time high (number of BTC held on the network).

Markets shaken as SEC targets crypto staking services

Crypto markets fell sharply on Thursday as news of a crackdown on crypto staking proliferated through the industry.

Concerns were initially raised on Wednesday by Coinbase CEO, Brian Armstrong. The CEO posted a speculative tweet saying that the exchange had been hearing rumors that the SEC was going after crypto-staking services. 

Tweet from Coinbase CEO, Brian Armstrong

Armstrong stated, “We’re hearing rumors that the SEC would like to get rid of crypto staking in the U.S. for retail customers.”

On Thursday, Armstrong’s fears became justified as US-based firm, Kraken, agreed to halt its US crypto staking services and pay a $30 million penalty to the SEC for not registering the platform. 

News of the crackdown sent shockwaves through the crypto community as staking is a fundamental part of the industry. 

Blockchains that operate thanks to Proof-of-Stake consensus mechanisms, such as Ethereum, Solana, and Avalanche, require individuals to stake associated coins. Staked coins are used by a network of validators that validate transactions and ensure the security of a network.

Thanks to ensuring the continued operation of a blockchain network, investors that stake are offered a staking reward. For example, current staking rewards for ETH are just over 7%. 

Many crypto-focused platforms now offer a staking service to alleviate the ease of the process.

While the services offered by Kraken were shut down on Thursday, the Chair of the SEC, Gary Gensler said in a statement that only services that are not registered would be affected. 

News from Kraken, “should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.”

While disruption to centralised staking services within the US would be a knock to adoption, thankfully, the operations of PoS blockchains and decentralized services remain unaffected. 

Want to learn how to stake your Ethereum using decentralized services? Don’t miss our guide on how to stake Ethereum.

 

Ethereum moves one step closer to Shanghai upgrade as JP Morgan weighs in

Last week, the Ethereum foundation confirmed that another important milestone for the upcoming Shanghai upgrade had been reached.

According to developers, the Shapella fork had moved into the final stages of launch on an Ethereum test known as Zhejiang. Zhejiang is an ecosystem for testing Ethereum upgrades.

Importantly, the Shapella fork on the testnet will bring the capacity for ETH staking withdrawals, which is the anticipated change set to be implemented by the Shanghai upgrade.

If successful on the Zhejiang network – the first of three testnets – it will be an encouraging sign for Shanghai, which is set to take place in March.

Interestingly, the enhanced staking flexibility that the Shanghai upgrade will bring to ETH holders has not gone unnoticed by investment banks around the world. 

According to CoinDesk, JPMorgan, one of the largest financial institutions in the world, released a report last week stating that the increased flexibility will likely lead to an increase in ETH stakers.

The bank believes that Ethereum’s staking ratio will likely increase from the current position of 14% to a ratio that is more in line with the average for other Proof-of-Stake blockchains. 

The staking ratio measures the amount of staked coins in a network versus the circulating supply.

“Assuming the staking rate converges over time to the 60% average of other large networks, the number of validators could increase from $0.5 million to $2.2 million and the annual yield in ETH would fall from 7.4% today to around 5%.”

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