Kraken

Kraken
Founded	2011
Headquarters	San Francisco, CA
Key People	David Ripley, CEO; Jesse Powell, Co-Founder
Employees	500-1000
Products	Kraken Exchange
Twitter	@krakenfx
LinkedIn	Profile
Facebook	Page
Website	Kraken Exchange Home
Blog	Kraken Blog

Kraken is an over-the-counter cryptocurrency trading platform founded in 2011. The San Francisco-based company offers bitcoin, Ether and other cryptocurrencies with several fiat currencies including US dollars, Canadian dollars, British pounds, euros, and the Japanese yen.

With operations in the US, Canada and Europe, Kraken is recognized as one of the largest bitcoin exchanges globally, although its ranking, based on volume, varies greatly. According to CoinMarketCap, as of September 2022 it was the fourth-largest cryptocurrency exchange measured by spot-trading volume.

Though it is incorporated in Delaware, the company’s largest markets are in Europe. Kraken says it is the largest cryptocurrency trading platform in the world for euro-based transactions.

In 2018, Kraken announced it would cease operations in Japan indefinitely, although it said it "might consider re-entering the market at a later point."

Background

Kraken was founded in July of 2011. It went into open beta on May 3, 2013, then went live on September 10, 2013. It emerged from a group called Max BTC, which was mining for bitcoins in 2011 and had about five percent of the network at one point, according to Kraken's co-founder Jesse Powell. Powell invested in computer equipment when bitcoin was priced at $1, but quickly exited the mining business and decided to focus on building the exchange.

History

In February 2014, Kraken was ranked as the number one exchange by volume in trading between bitcoin and euros. It began listing prices on Bloomberg terminals in April 2014.

In March 2014, the exchange raised $5 million in Series A funding. The company raised more money in a deal with SBI Investment in February 2016 and another round of investment from Money Partners Group in April 2016, and grew quickly through a series of strategic acquisitions. Kraken purchased and integrated several other exchanges including Coinsetter, a New York-based exchange with operations in Canada, and another called CleverCoin, a Dutch-based digital currency exchange. It acquired wallet funding service Gildera in December 2016 and rebranded it as Kraken Direct. It bought the charting and trading platform Cryptowatch in March 2017.

Kraken began offering yen trading against bitcoin in Japan in 2014, but in April 2018, the exchange announced it was exiting the country and suspending operations in Japan for Japanese residents. Before this time, Japanese authorities had allowed the exchange to operate in Japan without a license.

In April 2018, Kraken announced it would not comply with New York Attorney General Eric Schneiderman's inquiry into the exchange, which was one of 13 exchanges to have received the request. Kraken's CEO Jesse Powell released a scathing statement about the request, calling the exchange's decision to leave New York in 2015 a "wise decision." Powell expressed frustration with New York's "disrespectful" treatment of cryptocurrency businesses as well as its cryptocurrency regulatory framework, BitLicense. He also described the nature of the demands as requiring a "massive" diversion of resources.

In a post on Kraken's official corporate blog entitled, "Kraken's Position on Regulation," Powell said the publication of the New York Attorney General's request lacked "any prior communication" and that "inclusion of exchanges which are clearly outside of the AG’s jurisdiction (including Kraken) raise questions about the true motive," and "comes off as a publicity stunt."

On April 8, 2019, Bloomberg reported that Kraken had been sued by Jonathan Silverman, the manager of Kraken’s New York sales and trading desk, for compensation due him from employment in New York in 2017, two years after Kraken said it would no longer do business in the state in order to avoid regulation there.

In September 2018, Jesse Powell announced that Kraken had laid off 57 of its North America-based employees, roughly ten percent of its client services team. Despite speculation over social media that the layoffs were due to a security breach, Powell asserted that it was merely a cost-saving measure taken due to low trading volumes and that the layoffs would not affect the quality of Kraken's service. Powell also said that Kraken was "still aggressively hiring in all areas."

CoinDesk and other publications reported on December 12, 2018, that Kraken had solicited its "most valued clients" by email to participate in a potential new equity offering which valued the company at $4 billion. The email, a copy of which was obtained by CoinDesk, asserted that Kraken was currently well funded. The purpose of the equity offering was to better align the company's interests with its most valued clients and to establish a "war chest for acquisitions."

On January 15, 2019, Powell made a public statement over Twitter urging users not to store their cryptocurrency on any exchange, including Kraken. He recommended using wallet hardware by Ledger or Trezor instead.

Kraken valued itself at $4 billion in June 2019 when it raised $13.5 million from 2,263 accredited investors on the online investment platform BnkToTheFuture. In the deal, the investors bought shares in an illiquid special purpose vehicle which bought equity in Kraken. Kraken was conducting a private placement at the same time.

In July 2019, former B2C2 managing director Kevin Beardsley joined Kraken Futures to help develop the business for European customers.

On July 31, 2019, Kraken announced that Etana Custody would now allow Kraken customers to transact in U.S. dollars, euros, Canadian dollars, British pounds, and Japanese yen worldwide. Users need to create an Etana Custody Wallet to do so.

The same week that its competitor Coinbase took the last steps to list its shares publicly in a direct listing on Nasdaq at a company valuation of about $100 billion, Bloomberg reported that Kraken was trying to raise new funding. The amount targeted in the raise was not disclosed but Bloomberg said that the raise valued the company at $10 billion.

Kraken co-founder Jesse Powell stepped down as CEO in September 2022 and was replaced by Chief Operating Officer David Ripley.

In November of 2022 Kraken said in a blog post that it would slash 30% of its work force, citing "macro economic and geopolitical factors."

Law enforcement requests

Over the course of 2018, requests from Kraken users for law enforcement intervention increased 300 percent from its 2017 statistics. 66 percent of the requests came from U.S. users, while the U.K., Germany, and France took up the majority of the rest. Many of the U.S. requests came from Homeland Security Investigations (HSI) and the Drug Enforcement Administration (DEA). Representatives from Kraken said that the "cost of handling subpoenas is quickly becoming a barrier to entry." Kraken reported in January 2020 that the growth in regulatory requests had slowed in 2019 to a year-on-year increase of about 50% to 710 requests. The share of requests coming from U.S. authorities had declined to about 62% of the total number of requests.

ICO Rating's security report

In January 2019 the independent cryptocurrency markets analysis firm ICO Rating ranked 135 of the world's most popular cryptocurrency exchanges according to their security. Kraken was ranked at #1, just above Cobinhood, with a solid "A" score. Cobinhood was the only other exchange to receive an "A" rating; no exchanges earned an "A+."

Crypto Facilities acquisition

In what Kraken called a purchase for "nine figures" on February 4, 2019, the company acquired U.K.-based Crypto Facilities. Crypto Facilities offers trading in cryptocurrency pairs as well as leveraged contracts, which it characterizes as "futures." Crypto Facilities also provides data and index services to the CME Group, Inc. in connection with the CME's bitcoin futures contract and its Ether index. In an indication that the deal had been underway for some time, Powell told Fortune that the companies had already integrated their back-end operations of Crypto Facilities allowing customers of both companies to trade on a single platform. The transaction was approved by the Crypto Facilities' regulator, the U.K. Financial Conduct Authority (FCA). Powell also said that the purchase had been funded from Kraken's own resources.

Following the Crypto Facilities acquisition, Kraken renamed the business "Kraken Futures." Kraken announced on March 25, 2019 that customers of its platform would be able to engage in both spot and futures trading. It also said Kraken users will be able to trade these contracts leveraged up to 50x, giving them the ability to profit in both bull and bear markets.

Kraken Futures is not available to U.S. residents.

According to Kevin Beardsley, head of business development at Kraken Futures, the platform provides its traders with rebates of 30 percent of the fees it collects.

In a November 2019-dated blog post, Kraken announced that it was launching futures market development efforts in Russia including hiring Aleksey Bragin as a representative in the country.

In March 2019, Crypto Facilities told Cointelegraph that its trading volumes increased by 500 percent after being acquired by Kraken.

Crypto Facilities received a license from the U.K. FCA on July 6, 2020 to operate Kraken Futures as a multilateral trading facility (MTF), letting the platform attract trading from businesses whose own rules restrict them to trading on regulated entities. Despite the U.K.'s January 2020 exit from the E.U., the platform's registration is valid throughout the E.U. at least until the end of the year. Crypto Facilities is the first cryptocurrency trading platform to receive a MTF license in the U.K. or E.U.

Employee complaint

In late November 2019 Nathan Runyon, a former employee of Kraken, filed a lawsuit against the company. According to the lawsuit, Runyon was asked to falsify exchange data to help the company pass audits, as well as ignore surreptitious changes in stock option grant vesting schedules that took place after the schedules had been posted in board meeting minutes. Though he attempted to bring these discrepancies to the attention of his superiors, the lawsuit says that Runyon was told to ignore them. Runyon also alleges that Kraken profited illegally from sanctioned parties on the Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons List; the lawsuit says that he attempted to address this "multiple times," but was ignored and faced repeated instances of workplace harassment, discrimination, and ultimately undue termination as a result. The lawsuit also includes other damning allegations not related specifically to the charges; it says that while training under an unnamed Kraken employee, he was asked by that employee to clarify basic financial concepts, such as, "what causes the price of bitcoin to go up and down (market supply/demand)" and, "who owns the blockchain." Runyon is seeking restitution for damages related to harassment at work, discrimination and breach of contract.

"John Doe" subpoena from IRS

On March 30, 2021, in conjunction with its tax enforcement initiatives focused on tax scofflaws who underreport cryptocurrency profits, the U.S. Internal Revenue Service filed a request with a federal court to subpoena the identities and account information of all Kraken customers who had held more than $20,000 in accounts at Kraken between 2016 and 2020. Such a request is termed a "John Doe" request because the IRS was unaware of the identities of the account holders, while Kraken is presumed to know who its customers are. The petition was filed by the Department of Justice in the Northern District of California.

SEC settlement on crypto "staking"

On February 9, 2023, Kraken agreed to stop offering crypto "staking" services in the U.S. and pay $30 million in penalties to the SEC. Staking allows investors to earn a yield by temporarily handing their crypto tokens over to an intermediary or a cryptocurrency network. The case was part of SEC Chair Gary Gensler's attempt to crack down on what he characterized as widespread noncompliance with U.S. securities laws by crypto platforms. Gensler has argued that crypto exchanges broke the law by allowing investors to buy and sell assets that should have been registered with the SEC first.

Products and services

Kraken offers trading in bitcoin, Ether, Augur, Bitcoin Cash, Bitcoin SV, Cardano, Dogecoin, EOS, Ethereum Classic, Monero, Qtum, XRP, Tether, Tezos, Zcash, Dash, Litecoin and several others against the US dollar, Canadian dollar (USD), euro (EUR), Japanese yen (JPY), Swiss Franc (CHF), and British pound (GBP). In January 2020, Kraken listed USDC, a stablecoin created as a joint venture by Circle and Coinbase. On January 15, 2021, the company announced that on January 29, 2020 it would halt trading in XRP for U.S. residents in response to the lawsuit filed against Ripple Labs by the U.S. Securities and Exchange Commission in December alleging that XRP was issued as an investment contract and is thus an unregistered security under its jurisdiction.

In July 2020, Kraken added 11 more trading pairs, creating more options for users to convert between different fiat and cryptocurrencies by adding direct cryptocurrency-to-cryptocurrency conversions.

On January 21, 2020 the company announced in a blog post that it was adding thirteen new trading pairs for customers who trade in British pounds or Australian dollars.

Cybersecurity measures

In March 2019, Kraken announced on its blog that it had appointed a new chief security officer, Nicholas Percoco. Kraken also announced that it would be requiring its users to sign in using two-factor authentication for added security, and that it had formed Kraken Security Labs, which would focus on improving the security of its own products and the "entire cryptocurrency ecosystem" by performing research on third-party products like wallets.

De-listing Bitcoin Cash SV

In April 2019, Craig Wright began arguing with a Twitter user called "Hodlnaut," a bitcoin user who became known for the "Lightning Torch" experiment, which was a promotional demonstration of the Lightning Network's capabilities. After achieving a large Twitter following, Hodlnaut made public posts criticizing Wright, who later sent Hodlnaut a letter accusing the Twitter user of being a "fraud," and threatening legal action. This triggered a huge wave of support for Hodlnaut, as well as renewed hate for Wright, from thousands of Twitter users.

Binance and ShapeShift afterward announced they would also de-list Bitcoin Cash SV. Kraken later announced that it would be doing the same, citing "community sentiment" around Bitcoin Cash SV as its primary reason for doing so. According to the announcement, Kraken planned on disabling BCHSV deposits on April 22, cease trading pairs on April 29, and stop withdrawals of BCHSV May 31. The BCHSV community responded with ire. Ed Pownall, a PR representative of Calvin Ayre, founder of CoinGeek.com and one of SV's biggest supporters, accused these exchanges of "market manipulation" and "playing God," and that delisting BCHSV sets "a dangerous precedent."

FX trading

In March 2020, Kraken announced that it would allow its traders to "expand their horizons" by launching FX trading on its platform on March 12, 2020 at 14:30 UTC. The announcement said that trading would be possible between all currencies currently offered in its fiat-to-crypto pairings, including EURCAD, USDCAD, EURCHF, EURGBP, USDCHF, EURJPY, USDJPY, EURUSD and GBPUSD.

Banking

On September 17, 2020, the Wyoming Banking Board approved Kraken's application to open a special purpose depository institution (SPDI) charter, making Kraken the first SPDI bank in Wyoming and the first cryptocurrency exchange to charter a U.S. bank.

Key People

• Jesse Powell, Founder
• David Ripley, Chief Executive Officer
• Nicholas Percoco, Chief Security Officer