Kraken announced today its acquisition of Crypto Facilities, the first regulated firm in the world to offer futures on crypto assets several years back. The move could put Kraken, currently the 46th largest bitcoin exchange by adjusted volume, on track to the top 10.
Kraken’s press release doesn’t say exactly how much they’re paying for Crypto Facilities. They use the term “nine figures,” which means at least $100 million.
Last year, the company conducted a round of layoffs that were a bit perplexing. Kraken CEO Jesse Powell later confirms that 57 employees laid off in Halifax. He also said the company was still “aggressively hiring in all areas.”
From a high-level view, the move could be seen as a response to #10 competitor Huobi Global, whose derivatives market, which launched in November, has seen rapid growth.
Kraken could have created its own derivatives platform. Instead, the Bitcoin exchange has taken the Google approach: acquire the best you can and put it to work for your clients.
Overseen by the UK’s Financial Conduct Authority, Crypto Facilities is a London-based company. The firm will reportedly stay there, “benefiting from the regulatory oversight of the Financial Conduct Authority, one of the world’s most forward looking and innovation-focused regulators.”
Kraken could roll the customers into its own platform, supposing the acquisition follows the path of other acquisitions like CAVIRTEX and Coinsetter. Even if the company remains in London, history shows it’s most likely future is as a Kraken-branded product.
Crypto Facilities recently announced a revenue sharing program for clients who provide liquidity.
$50,000 per week is available to clients who make markets on the exchange. The share of the revenue will be calculated weekly, based on the contributions of clients.
“The RSP measures clients’ contribution to the platform during one week intervals, starting at 12 pm UTC each Friday and will initially run for 10 weeks. At the end of each interval, each client’s revenue share is calculated and paid out.”
Kraken joins Huobi and BitMEX in offering derivatives. As Binance’s Changpeng Zhao said in an argument that the crypto market can grow by 1,000 fold, “the derivatives market is so much bigger.” BitMEX processes nearly $1 billion in trades on a daily basis, making it one of the largest exchanges period.
Crypto asset prices derive from spot trading. Therefore, derivatives markets have limited effect. However, sentiment expressed on derivatives platforms can certainly influence the prices of assets. If derivatives value an asset hundreds of dollars higher or lower than you’re seeing it, your view of that asset is likely to change.
The potential for derivatives exchanges is virtually unlimited, just like in the traditional stock world. Contracts on Bitcoin and its competitors offer high volatility and potential for profit. Combined with leveraged trading, the volume on such exchanges can be extreme.
As such, Kraken could see its profits and ability to innovate increase dramatically.
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