What Is Kraken? How It Works, How It Stands Out, and Issues

What Is Kraken?

Kraken is a cryptocurrency exchange based in San Francisco where market participants can trade various cryptocurrencies. The participants are allowed to buy or sell the cryptocurrencies using various fiat currencies, that include U.S. dollars, Canadian dollars, euros, and the Japanese yen.

As of January 15, 2023, Kraken is the world's third-largest cryptocurrency exchange, with a daily trading volume of $333 million according to exchange aggregator CoinMarketCap. Kraken allows trades in over 200 cryptocurrencies, and over 600 cryptocurrency pairs.

Virtual currencies available on the Kraken exchange include the popular ones, like Ethereum (ETH) and Bitcoin (BTC), and others that have gained traction in recent times, like EOS (EOS), Monero (XMR), and non-fungible tokens (NFTs). The platform also allows trades in cryptocurrency futures and derivatives.

History of Kraken

Kraken was established in 2011, and it formally launched trading operations in 2013. It is owned by Payward Inc. The current CEO is David Ripley, who replaced co-founder Jesse Powell in 2022.

The exchange provides the easy movement of money to and from the linked bank accounts of the participant, and the movement of cryptocurrencies to and from the participant's digital wallets from Kraken-linked trading accounts.

In 2014, as cryptocurrencies became more popular, Kraken, along with Coinbase exchange, was selected to provide the market data of bitcoin trading to the Bloomberg terminal. Getting associated with the leading market data provider helped Kraken gain popularity among the trader community. Bloomberg clients were then able to access virtual currency prices, charts, news, and social media posts through appropriate Bloomberg services and terminals.

Shortly afterward, Kraken partnered with the chart-service provider, TradingView. It continued to add more cryptocurrencies to its trading platform and enabled funding and trading in various fiat currencies like the USD, GBP, and JPY.

Kraken vs. Other Cryptocurrency Exchanges

Over the years since its launch, a lot of factors have contributed to Kraken as a trading destination of choice for a variety of cryptocurrency market participants.

After having a smooth initial phase post-launch, Kraken made headlines in late 2014, when it was selected “to support an investigation into the missing bitcoins, as well as the distribution of remaining assets to Mt. Gox's creditors.”

Mt. Gox, which once claimed to be the largest bitcoin exchange, filed for bankruptcy in early 2014. It was struggling with a huge debt pile, and 850,000 lost bitcoins.

Up to that point, Kraken was not among the largest exchanges, and was primarily serving European customers through a partnership with Germany-based Fidor Bank, and had just started in Japan.

In February 2016, Kraken announced it was making significant progress in its Mt. Gox investigations and had approved numerous claims from thousands of creditors of Mt. Gox.

Growth during early 2015 was boosted by the launch of several new features that made cryptocurrency trading popular among the masses as well as among the professional traders community. It included launching the margin trading facility, and the dark pool services. 

Dark pools clients are eligible for potentially better prices, as they are allowed to discreetly place large orders that get executed against similar-sized orders offering them price advantage.

Concerns About Kraken

In May 2017, Kraken, along with the bitcoin exchange Poloniex, was hit with Distributed Denial of Service (DDoS) attacks, leading to huge losses for market participants.

The incident led to a class action lawsuit being filed against Kraken, where plaintiffs are seeking over $5 million which they claim they lost as a result of Kraken’s mishandling of the DDoS attack.

The exchange has also fallen under scrutiny by government regulators. In 2018, the New York Attorney General identified it as one of several exchanges that were not following the state's financial regulations.

In 2019, the Office of Foreign Assets Control investigated Kraken for violating sanctions by transacting with customers based in Iran. The exchange settled for a penalty of $362,000, plus an additional $100,000 to be spent on enforcing sanctions controls.

The Bottom Line

Despite recent challenges, Kraken remains among the most popular virtual currency trading platforms. While it is not uncommon to see even established stock exchanges get hit by temporary snags, the decentralized and anonymous nature of cryptocurrencies makes trading them very challenging.

Although cryptocurrencies largely remain outside of the purview of government regulation, trading exchanges and marketplaces will need to balance regulations imposed by real-world regulators and the unknown, uncontrolled valuation mechanism of the various digital currencies.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns/does not own cryptocurrency.