Cryptonomist interviewed the team behind the Kraken exchange to talk about the regulation of cryptocurrencies, the trend of NFTs and the future of the platform.
What do you think of the current bear market? Is this a moment that will pass soon or should we wait a couple of years like in 2017?
It is becoming increasingly difficult to predict market cycles in the cryptocurrency space. It is a global industry with a wide range of participants that continues to grow and diversify with each passing year. The NFT and DeFi sectors, both worth multi-billion dollars in their own right, developed as sub-sectors of the industry that were only distinguishable in 2020.
We can expect this divergence to accelerate further as adoption rates continue to rise, and token holders become more educated and better understand the assets they are buying. For the regular investor, this could mean that we are starting to move away from the bull / bear binary cycles, and towards a more complex market dynamic, with some industry sub-sectors growing at different rates.
What do you think of NFTs? Is Kraken also moving on this front? Are we in a bubble? It’s already finished?
NFTs are the means by which content creators can, in the age of the internet, get paid adequately for their work. Until recently it was nearly impossible for creators to enforce the rights to their work online, as it can be copied countless times as soon as it is uploaded.
With NFTs, content creators can freely advertise their work online and sell their work to their community directly, rather than through different layers of intermediaries that incur costs. To put it simply, an NFT is a type of licensing technology that allows a content creator to exercise their property rights online. NFTs provide artists and musicians with a sustainable income stream, while allowing anyone with internet access to see and enjoy their work at their leisure. In fact, posting one’s content on the internet can actually improve an artist’s profile, which in turn can lead to higher ratings.
As a leading player in this space, Kraken has already listed the FLOW token, and provides on-chain staking support for clients in select jurisdictions. Taking a step back, we can see that the NFT Spring we saw earlier this year could be the first mainstream disclosure of asset tokenization: the idea that any asset, both tangible and intangible, can be represented in the form of a cryptographic token that can be easily traded on a distributed ledger, in the same way as a cryptocurrency.
As asset tokenization takes off in earnest, other asset classes, such as real estate and equity markets, could also experience significant disruption.
In general, what are the new things that Kraken is working on?
Kraken aims to be a single provider of cryptocurrency-related services. In addition to cryptocurrency trading, Kraken also provides fiat onramps in seven global currencies, mobile access for both professional and common investors, as well as secure on-chain staking services, a Parachain auction platform, and even the first crypto- bank to the world, which will soon open its doors to US customers.
Kraken’s core mission is to provide our over 7 million customers worldwide with one of the most comprehensive offerings in the crypto space. We are constantly looking for new opportunities to make sure customers continue to receive the best possible range of cryptocurrency-related services.
Will regulation help industry achieve mass adoption or will it be an obstacle?
It depends on how we define ” mass adoption “. It is estimated that there are already 100 million people around the world who have bought or held some form of digital asset – including one in ten Americans and about 8% of Italians – so we are already in a phase where cryptocurrencies they have reached a certain level of mainstream acceptance. In fact, if it were a country, the global crypto community would actually be the thirteenth or fourteenth most populous nation in the world. However yes, regulation will certainly help facilitate further mass adoption , particularly at the institutional level.
Over the past 12 months, we’ve seen unprecedented institutional interest and activity in the digital asset class, both at Kraken, and across the industry more broadly. Fund managers aren’t automatically discounting cryptocurrencies in the same way they could in 2017, but there is still some hesitation in jumping into an asset class with a loose legislative framework or regulatory guidance. This is changing and it is promising to see officials around the world seriously take legal definitions for cryptocurrencies, as well as how best to regulate them as an asset class.
For example, the European Commission’s proposal, first announced last September, to create a single digital asset regime across the European Union could be a significant step towards reducing regulatory friction between member states.
Greater regulatory certainty is likely to lead to a proliferation of crypto financial products – such as ETFs – which allow investors to gain exposure to the digital asset sector through a traditional tool. In fact, many of these products have already begun trading in Europe, Canada and Brazil, and many more are likely to hit the market when there is more clarity from global regulators.
The CFTC Fines Kraken $1.25M for Offering Unregulated Margin Trading
According to a CFTC statement on Sept. 28, Kraken allowed U.S. customers to access products that were supposed to be prohibited for them.
The order requires Kraken to pay a $1.25 million civil monetary penalty and to “cease and desist from further violations of the Commodity Exchange Act.”
The exchange, founded in 2011, allowed its U.S. customers to trade with margin products between June 2020 and July 2021. It was also accused of failing to register as a futures commission merchant (FCM).
No Margin for Americans
CFTC acting enforcement director, Vincent McGonagle, said that to offer such products, the company must register with regulators.
“Margined, leveraged or financed digital asset trading offered to retail U.S. customers must occur on properly registered and regulated exchanges in accordance with all applicable laws and regulations,”
He added that the action is part of the CFTC’s broader effort to protect U.S. customers. Margined retail commodity transactions in digital assets are frowned upon by regulators due to the amplified risks of liquidation.
Kraken served as the sole margin provider and had custody of all assets purchased using margin for the duration of the customer’s open margined position, the order stated.
It added that traders could not withdraw assets on margin for 28 days as Kraken held on to them. Additionally, the exchange could “initiate a forced liquidation if the value of the collateral dipped below a certain threshold percentage of the total outstanding margin.”
Kraken settled the CFTC’s claims without admitting or denying them, and the agency noted the firm’s cooperation. In a statement, Kraken said it was committed to working with regulators to ensure rules for crypto assets create a level-playing field for traders globally.
In April this year, Kraken CEO Jesse Powell warned that the crypto industry would likely be subject to heavier regulations in the U.S.
Speaking to CNBC at the time regarding regulation, he said, “I hope that the U.S. and international regulators don’t take too much of a narrow view on this. Some other countries, China especially, are taking crypto very seriously and taking a very long-term view.”
In May, Kraken was ordered by a Californian court to provide information to the Internal Revenue Service on users who executed crypto trades for $20,000 or more between 2016 and 2020.
Kraken pays $1.2 million penalty for violating CFTC order
- The US CFTC filed and settled charges against Kraken for violating its CEA order.
- The exchange was ordered to pay a penalty of $1.2 million.
US cryptocurrency exchange Kraken violated the Commodity Exchange Act (CEA) of the Commodities Futures Trading Commission (CFTC), according to the regulator’s notice on Tuesday. As part of the settlement with the CFTC, the exchange is expected to pay a penalty of $1.25 million and also desist from offering any more transaction that violates the CEA.
Kraken failed to register as CFM
Per the regulator, the exchange failed to register as a futures commission merchant (FCM). It also illegally operated margined retail commodity transactions on digital assets like Bitcoin for over a year, starting from June 2020 to July 2021. The laws require that all margined, leveraged, or financed digital asset trading must be conducted on registered and regulated platforms, especially if offered to retail U.S. customers.
Kraken conducted margin trading for US customers, where it allowed the traders to exit their positions and repay the assets within 28 days. Their positions will be automatically liquidated by the exchange if the price dips or the traders fail to repay the assets within the stipulated period. These transactions should only take place on a registered and regulated exchange; hence, Kraken constituted unlawful transactions per CFTC.
The CFTC has filed and settled the charges against the exchange. “This action is part of the CFTC’s broader effort to protect U.S. customers,” said Acting Director of Enforcement Vincent McGonagle.
Kraken prominence in crypto
Kraken is one of the popular and fast-growing digital currency trading platforms in the United States and globally. Recently, it solidified its presence in the US market by launching its mobile app that allows users to trade over 50 cryptocurrencies. The exchange also has the interest to go public by 2022 via a direct listing.
Kraken App Now Accepts Google Pay And Apple Pay
Kraken is currently one of the leading cryptocurrency exchanges in the world. Its web and app interfaces provide users with an easy-to-use way to buy, sell, trade, and store cryptocurrencies. The crypto exchange currently features a couple of ways to buy crypto on its platform, including credit and debit cards. Now, Kraken has added two more ways for its users to purchase crypto on the app.
Kraken Adds Google And Apple Pay
A recent post on Kraken’s blog announced the addition of two new payments options to the crypto exchange. This comes at a time where crypto investors are looking for new ways to pay for their investments. The crypto exchange announced that it was now adding the option to buy crypto with Google Pay and Apple Pay. Two payments mode which has been growing in popularity amongst users in recent years.
Both Apple Pay and Google Pay will automatically connect with the Kraken app on the device. Enabling easy access to paying with crypto, which can be done in a matter of seconds on the app. The new payment methods do require a minimum purchase of $10 when paying with them. And the maximum purchase currently is $7,500 for each payment method in a 7-day rolling period.
These new additions will make it even easier for users to purchase crypto. And new investors in the market do not have to go through a convoluted process in order to purchase their first crypto.
“With the addition of Apple Pay and Google Pay, we take yet another step forward making it easier to make crypto part of your daily experience.”
Easier Ways To Purchase Crypto
Kraken is not alone in adding innovative payment methods to its platform. About a month ago, Coinbase announced that it was adding the option to purchase crypto on the exchange using Apple Pay. Google Pay capability was added onto the platform later, which now allows users to purchase crypto on the exchange easily.
Payments giants PayPal, at the beginning of the year, had rolled out crypto support for its U.S. customers. August 2021 saw the payments platform extending its crypto offering to the U.K. Allowing users to buy, sell, and store cryptocurrencies on the app.
In a move that took the market by surprise, the U.K. Post Office had also taken a plunge into cryptocurrencies. As of two weeks ago, users of its app EasyID can now directly purchase crypto from German-based crypto exchange Swarm Markets.