What is Kraken? (And is it available in Canada?)

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robertstevens

Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.

Kraken is a cryptocurrency exchange, on which you can buy and sell Bitcoin, Etherum, Dogecoin and 66 other cryptocurrencies. There are 311 markets on the exchange, each offering a different financial trade on the crypto market.

The exchange, founded in 2011 by libertarian Jesse Powell, is the fifth largest cryptocurrency exchange by spot trading volume. As of July 15, 2021, it processed $652 million worth of trades—making it 23 times less popular than the most popular exchange, Binance, but still formidable in its own right.

Kraken is best known for its low fees, which rival some of the cheapest exchanges in the industry. For people trading under $50,000 a month on crypto exchange site Kraken Pro, so-called “makers” (those who add trades to orderbooks, by, for instance, selling Bitcoin) it’s 0.16% per trade, and for takers (those who take trades off of orderbooks, by, for instance, buying Bitcoin) it’s 0.26% per trade. Like other exchanges, these fees decline if you trade more cryptocurrency.

How does Kraken work?

Kraken is a platform for trading cryptocurrencies. Say you want to buy some Bitcoin. You can deposit some money, either another cryptocurrency or some cash, on Kraken, and use your funds to buy Bitcoin.

If you’re using Kraken Pro, the advanced version of Kraken (and cheapest, at least for retail traders), you’re buying that Bitcoin from other traders using Kraken’s matching engine, which links up your trades with everyone else on its platform. You pay a small fee to execute the trade, and the Bitcoin is yours. You can also sell your Bitcoin on Kraken in the same way, either for cash or for another cryptocurrency.

Note that while cryptocurrencies run on a blockchain, exchanges like Kraken process all those trades on internal databases—to do the whole thing on a blockchain would be slow and expensive.

To sign up for Kraken, you’ll have to submit some personal information, like your name, date of birth, and job, and to use Kraken Pro you’ll have to submit proof of your identity and residence. U.S. residents have to submit their social security number. Only people over the age of 18 can register for accounts with Kraken.

You can also trade futures on Kraken—bids that the price of a cryptocurrency will go up at some predetermined time in the future. Futures, and other similar derivatives trades (like options or swaps) are attractive for traders who want to execute more advanced trading strategies or who want to hedge their trades in case of a crash or a boom—perhaps they have a Bitcoin loan to repay in a couple months and want to ensure that they can pay it back.

Kraken offers a great deal of leverage—50x for Bitcoin futures, meaning that you don’t need a lot of money to make a big profit. Futures are, however, volatile, and it would only take a small market movement to wipe out your position.

Kraken also offers staking, which is where you deposit cryptocurrencies to earn interest. Kraken’s rewards vary by cryptocurrency, and can be as high as 20%. Note that the reward is paid out twice a week in the cryptocurrency you deposited, and that cryptocurrencies can fluctuate by as much as 20% in a single afternoon.

Under the hood, staking can mean different things. Newer cryptocurrencies like Algorand and Tezos run on so-called proof-of-stake blockchains, which use staked cryptocurrencies to validate transactions. However, other staking programmes are no different than letting your bank lend out or invest your deposits.

Trading on Kraken comes with different fees. The most expensive is its “instant buy,” which lets you quickly buy or sell crypto. This carries a 0.9% fee for stablecoins (cryptocurrencies pegged to the value of another asset, most commonly the U.S. dollar) or 1.5% fee for cryptocurrencies, plus a 3.75% card processing fee, plus a fee of about 0.25 cents, plus an online banking fee of 0.5%. Trading on Kraken Pro is much cheaper, and costs about 0.26% for small amounts.

What else can you do on Kraken?

Like other exchanges, Kraken offers an over-the-counter trading option for institutional investors who don’t want their trades to appear on the orderbook; this is often because trades are so large that making that information public could affect the market, and therefore the value of that trade. Kraken was one of the first exchanges to implement darkpools, which support these kinds of trades.

Kraken also became the first crypto company to win a banking licence in the U.S. This was big news when Kraken announced its new bank in 2020, since it brought Americans a little closer to using crypto in their day-to-day lives rather than holding it for speculative purposes.

There are a couple of catches to Kraken Bank. The first is that Wyoming, a relatively small state far away from Wall Street, issued the license.

The second is that Kraken is actually a “Special Purpose Depository Institution,” which is technically a bank but one that cannot play around with fractional reserves or issue loans. It does, however, make it easier for Kraken’s customers to store cryptocurrencies, use them in payments systems, and switch between regular money and cryptocurrencies.

Deposits won’t be insured by the FDIC but Kraken has to back all of its reserves at all time and has structured its capital reserves “in a safe and sound manner that prioritizes customer fund protection.” Kraken claims that its bank has no insolvency risk, and it will “never need a bailout or any public-funded backstop.” It’s also not yet launched, and was supposed to go live in the first quarter of 2021.

Is Kraken available in Canada?

Kraken is available in Canada but certain trades are banned.

Canadian residents can’t trade Ethereum tokens that have been staked for Ethereum 2.0, the next upgrade to the popular Ethereum blockchain. These tokens are called ETH2.S, and are like synthetic assets that represent locked-up ETH—it’s a little like trading the right to cash stored under your grandmother’s mattress without trading the cash itself. However, Canadian residents can still stake ETH—lock it up in the contract for Ethereum 2.0 and earn interest on it. Canadian residents can’t deposit, hold or trade about 20 other tokens, including SUSHI, FLOW, and BNT. Futures trades are banned for Ontarians.

Who created Kraken?

Jesse Powell has been in the digital currency business for over twenty years. He started playing around with virtual currencies in videogames when he founded Lewt, a gaming virtual item company, in 2001. He fell into Bitcoin in around 2011.

The decentralized cryptocurrency, founded in 2008, was a natural fit for the long-haired philosophy grad. According to a 2020 Coindesk interview with Bitcoin investor Roger Ver, Powell attended plenty of Libertarian Party meetings in his late teens and early twenties.

Bitcoin is arguably libertarian by design; its ledger is hosted by thousands of computers across the world, meaning it’s very difficult for governments to shut it down or companies to take over the network. And because of the sanctity of its private wallet system—similar to an online bank account, but one that’s directly connected to Bitcoin—nobody can take away your money.

It might seem strange, then, that Powell started a cryptocurrency exchange company that plays a similar kind of fractional reserve banking game as, well, banks.

Powell started Kraken after visiting the office of another centralized cryptocurrency exchange, Mt. Gox, following a hack in 2011. He knew that if Mt. Gox should close, another exchange needed to take its place.

In 2014, Mt. Gox did close, following another hack of about 850,000 Bitcoin. At that time, Mt. Gox accounted for about 70% of all Bitcoin transactions. Kraken’s COO at the time, Michael Gronager, was in charge of the investigation, and left Kraken to found a successful cryptocurrency company called Chainalysis.

Kraken had launched its exchange service slightly earlier, in September, 2013. It started offering Bitcoin, Litecoin, and euros. Shortly thereafter, it added more cryptocurrencies and margin trading.

The exchange started to grow. In 2014, it raised $5 million in a Series A round and got a spot on Bloomberg Terminal. A Series B came in 2016, and subsequent funding rounds brought its total funding amount to $125.8 million, according to Crunchbase. Following Bitcoin booms in 2017 and 2021, the exchange grew and grew. It now has over 6 million customers in almost 190 countries.

In June, 2021, Bloomberg reported that recent talks about Kraken’s latest fundraising round valued the company at $10 billion, and people familiar with the matter said it could soon surpass $20 billion.

Powell told Bloomberg TV that he wants to take the company public by the end of 2022. The exchange would be the second cryptocurrency exchange to go public on a U.S. stock exchange after Coinbase’s direct listing in the spring of 2021. (Coinbase shares promptly tanked after the listing, then fell even further when Bitcoin’s price cut in two following, among other things, crackdowns from the Chinese government).

Last Updated August 2, 2021

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