Bitcoin's new-year rebound has hit the buffers, hampered by a crypto crackdown in the US and fears that higher-for-longer interest rates will sap investor appetite for speculative assets.
The largest token's 6 per cent three-day retreat is the worst over such a time-span since December, while a gauge of the largest 100 digital assets is down 5 per cent. Bitcoin hovered near $21,850.
Crypto exchange Kraken on Thursday said it will scrap digital-asset staking products in the US and pay $30 million to settle Securities and Exchange Commission allegations that the service broke rules. The development highlighted escalating regulatory skepticism about the crypto sector, which continues to squirm under the ramifications of the collapse of the FTX group.
"Regulators have been caught with their pants down on FTX and the community fears that the regulatory pendulum will swing the other way aggressively," said Cici Lu, founder of Venn Link Partners, a blockchain adviser.
Speculation fuels sector
She added that there is "wild speculation" going around that the crypto sector is going to find it harder to access banking services in the US.
Riskier investments like crypto are also under pressure because concerns about sticky inflation are hardening bets on a higher peak for interest rates.
Bitcoin's next test may be whether it can hold above its 200-day moving average, near $20,000, said Tony Sycamore, market analyst at IG Australia Pty. The token's year-to-date bounce from last year's rout has ebbed to 32 per cent.
The Kraken and SEC developments had consequences across crypto-linked assets. Shares in Kraken's rival Coinbase Global Inc. sank over 14 per cent, the most in more than six months, on concern the latter's staking products are at risk.
More scrutiny on staking
Staking involves earning rewards by locking up coins to help order transactions on various blockchains such as Ethereum. Coinbase, Kraken and other crypto exchanges have waded into staking products to diversify revenues.
Coins linked to decentralised staking services such as Lido and Rocket Pool have received a tail wind over the past couple of days. These applications are viewed as harder for regulators to pin down as they often run autonomously on complex software code, with no central corporation in charge.
The value of a basket of a dozen such coins - so-called liquid staking tokens - has climbed 9 per cent over the past 24 hours to $4.7 billion, bucking the wider crypto downturn over the same period, CoinGecko data shows. Rocket Pool is the largest gainer of the 12, posting a surge of 15 per cent.
While the SEC's steps may slow the pace of crypto-staking adoption somewhat in the US, the price action in "liquid staking protocols implies a high likelihood of market share shift to decentralized alternatives," said Matthew Sigel, head of digital-assets research at fund manager VanEck.