- Brandt predicts imminent regulatory scrutiny over staking, anticipating strict controls from central banks and treasuries.
- Despite ETFs’ exclusion of staking, Brandt raises concerns about its sustainability, comparing it to Ponzi schemes.
Yesterday, the approval of Ethereum ETFs marked a good event in the cryptocurrency market. In response, experienced trader Peter Brandt issued a warning about the risks of staking, particularly with Ethereum (ETH) and Solana (SOL).
An opinion that will not have much appeal among ETH/SOL similar hound dogs.
The biggest disasters yet to come in crypto will be to staking (and those who think they are doing the staking). The bankruptcies and personal fortunes lost in the staking game will someday blow your mind pic.twitter.com/pmnm4fo6Oi— Peter Brandt (@PeterLBrandt) May 24, 2024
Brandt highlighted that staking involves substantial financial risks that could lead to severe losses or bankruptcy. He explained that staking is similar to leveraging assets, where investors engage ETH or SOL by lending them at interest. This process, he noted, could potentially draw regulatory scrutiny due to its inherent risks.
Staking
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Owning/borrowing/leveraging an asset (ETH/SOL/name it)
Lending it out for revenue (i.e.: interest)
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Eventual involvement by CBs/govt treasuries
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Regulatory authority over staking
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End to staking https://t.co/hv835g3pfK— Peter Brandt (@PeterLBrandt) May 24, 2024
Brandt also predicted that central banks and government treasuries are likely to introduce strict regulations on staking activities soon. He anticipates that these regulations will alter the current staking practices significantly, possibly phasing them out in their existing form.
Drawing on historical financial precedents, Brandt expressed concerns about the sustainability of profits from staking. He compared the mechanism to financial schemes that promise high returns, which often prove unsustainable in the long run.
He referenced the infamous Ponzi scheme to illustrate potential pitfalls where returns might be funded by incoming participants, creating a financially unstable structure.
This warning comes amid the recent approval of spot Ethereum ETFs, where it was noted that the applications for these ETFs specifically excluded staking. This exclusion underlines a critical regulatory distinction: non-staked ETH is classified as a commodity, whereas staked ETH might be treated as a security by regulatory bodies such as the SEC.
Despite Brandt’s reservations, staking still holds appeal for ETF issuers and investors, primarily because it allows earning interest by holding tokens and participating in network verification.
However, Brandt’s cautionary advice serves as a reminder of the need for investors to consider both the potential gains and the inherent risks associated with staking in the crypto market.
