Bitcoin price slumps 5% amid regulation fears

Did regulators just drive a stake through the heart of this crypto investment?

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Key points

  • Investors have sold down the Bitcoin price by 4.9% to US$21,853 following a move by regulators
  • The US Securities and Exchange Commission has settled with Kraken over offering unregistered securities 
  • Kraken, a major crypto exchange, will close its staking as a service platform immediately

The cryptocurrency industry is back under the microscope of United States regulators, prompting fears of a clampdown. Concerns about what could come next have weakened the Bitcoin (CRYPTO: BTC) price by 4.9% over the past 24 hours.

At the time of writing, the original cryptocurrency is sitting at US$21,853. The latest decline takes the crypto asset's weekly fall to 7.3% after experiencing a 40% surge throughout January.

Tightening chokehold worries investors

A dark cloud has hung over crypto since it began gaining mainstream popularity. An uncontrollable risk to those who invest in it has always been a damaging regulatory intervention. Various recent developments in this area have brought these concerns to the surface once more.

Yesterday, reports flowed through that the US Securities and Exchange Commission (SEC) was investigating Kraken, a major crypto exchange with more than 9 million clients, for alleged securities violations.

There's a lot of backstory to this, but what is important is there has been an ongoing debate around the classification of different cryptocurrencies. Namely, what is deemed a security and what is considered a commodity.

The decision is critical for how crypto assets are treated and, ultimately, the price of Bitcoin and others.

Alongside the Kraken reports, Coinbase Global Inc (NASDAQ: COIN) CEO Brian Armstrong revealed rumours of the SEC potentially wanting to crack down on staking for US customers altogether. Armstrong aired this regulation speculation via a tweet, as shown below.

Fast forward to today, and we now know that Kraken will cease its crypto-staking services immediately following a settlement with the SEC. Additionally, the company will pay $30 million for offering unregistered securities.

The move has created unease among investors and the industry. In fact, some believe the stance on staking could be a part of a broader move, labelled 'Operation Choke Point 2.0', to remove crypto completely from the US.

Pain for more than the Bitcoin price

Bitcoin might be the most popular crypto to take a hit over the news, but it isn't the only one languishing after the outcome. Other major assets riding lower following the news include:

Investors will no doubt be closely monitoring whether regulation could begin to creep further into decentralised finance (DeFi). For now, the outlook for staking is much murkier than it was a week ago.

The price of Bitcoin remains 50% below where it was a year ago.

Motley Fool contributor Mitchell Lawler has positions in Bitcoin and Ethereum. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Avalanche, Bitcoin, Cardano, Coinbase Global, Ethereum, and Solana. The Motley Fool Australia has positions in and has recommended Avalanche, Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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