Jesse Powell Shares Thoughts on Trading, Kraken and the Future of Bitcoin
- Cryptocurrency exchange Kraken has continued to excel in what has become a saturated market, dominating euro-denominated trading.
San Francisco-based cryptocurrency exchange Kraken has continued to excel in what has become a saturated market, dominating euro-denominated trading and typically ranking in or near the top ten exchanges globally in total volume.
To help make this happen, it has kept busy introducing new features, expanding to new markets, establishing strategic relationships and thinking outside the box.
Milestones achieved during the last year include: its expansion to Japan, where MtGox's monumental collapse left a gaping hole in the local bitcoin trading market; being chosen by MtGox bankruptcy trustee Nobuaki Kobayashi to assist with the distribution of remaining assets to creditors; the release of its iOS app and the launch of new charts.
It is now one of the few exchanges supporting four types of fiat: USD, EUR, GBP and JPY (and CAD to be added in the near future), in addition to alternative digital currencies litecoin, dogecoin, namecoin, Ripple's XRP, stellar, and even Hub Culture's Ven.
Following Kraken's recent launch of margin trading, Finance Magnates talked with CEO Jesse Powell, also one of the early backers of Ripple, about the exchange and his future outlook for Bitcoin:
There is increasing focus this year on Bitcoin as a technology, less as a currency. Does this threaten the future success of exchanges- as good as they may be?
Not at all. Those who aim to separate bitcoin from the Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Read this Term don't understand Bitcoin. If you want to write something in the ledger, you need ink, and bitcoin is that ink. If we arrive at a world in which conversion between bitcoin and other currencies is no longer a necessary service, I would say that we succeeded in our mission. If more successful blockchains emerge, I would expect more viable Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term to emerge, and therefore even more demand for exchanges.
Do you anticipate future price volatility or stabilization- if the latter, how/where will prices find equilibrium?
I think we have a lot of volatility to come but as the market becomes more liquid and bitcoin becomes more widely adopted and used in commerce, we'll see greater stability. Right now volatility comes from it being so thinly traded--it's like a penny stock. The market cap is only $3.3 billion today. Even $360 billion businesses like Google look volatile compared to multi-trillion dollar businesses, like the USD. So, it's all relative.
Are you seeking to advance past the regulatory "grey area" and attain some official blessing as a regulated entity- similar to how itBit is trying in the US?
To my knowledge there is no "grey area" in the US. Most exchanges that are servicing US clients are doing so illegally. They're taking on huge contingent liability, and after what happened to Ripple Labs, I'd be worried if I were them. Whether itBit's trust company hack will be accepted by all, or even a majority of the states has yet to be seen. I do hope it works because the money transmission regime makes little sense for exchanges. We are looking for ways to operate legally in the United States.
Was the recent stability in bitcoin prices a factor in introducing margin?
Yes, it was one factor. It certainly makes it easier to test things out, and for our clients to play around without losing much.
What kind of (automated?) risk management protocols are being employed for situations of high volatility?
We have margin calls and liquidations to help clients protect their positions and to protect the exchange against accounts going negative. We have a limited global pool of funds available for margin, and each account also has its own individual limits. We feel pretty comfortable with the controls we have in place.
Would margin be scaled down from 3:1 or removed entirely should volatility return in a major way?
Sure, if we felt that the volatility was beyond our ability to control the risks, we would remove or scale back the feature. First and foremost we exist to provide a market for spot, deliverable bitcoin. Advanced features for traders, like margin, are secondary. We want people to have a good experience and if we feel that a particular feature is going to cause a lot of clients to have a bad experience, we'd remove it or restrict it to those who have shown that they are aware of and accept the extreme risks involved.
The news release said margin will be "3:1 at launch"- will it be raised in the future?
Yes, we intend to raise margin up to 10-20x as we're better able to control the risks.
(Such levels would be by far the highest for spot trading in the industry, and rival those found in CFDs and other synthetic products.)
Any new currencies (fiat/digital) planned for future addition?
Canadian dollars are coming within the next two weeks.
How about new trading instruments (e.g. futures)?
We are exploring futures, deliverable forwards, options. Our primary concern is that in offering new trading instruments, we avail ourselves to new regulatory authorities, and new bodies of law with which we must comply. We have to do the math on whether the expected revenue is worth the cost of compliance. Unlike most other exchanges, Kraken takes compliance very seriously.
San Francisco-based cryptocurrency exchange Kraken has continued to excel in what has become a saturated market, dominating euro-denominated trading and typically ranking in or near the top ten exchanges globally in total volume.
To help make this happen, it has kept busy introducing new features, expanding to new markets, establishing strategic relationships and thinking outside the box.
Milestones achieved during the last year include: its expansion to Japan, where MtGox's monumental collapse left a gaping hole in the local bitcoin trading market; being chosen by MtGox bankruptcy trustee Nobuaki Kobayashi to assist with the distribution of remaining assets to creditors; the release of its iOS app and the launch of new charts.
It is now one of the few exchanges supporting four types of fiat: USD, EUR, GBP and JPY (and CAD to be added in the near future), in addition to alternative digital currencies litecoin, dogecoin, namecoin, Ripple's XRP, stellar, and even Hub Culture's Ven.
Following Kraken's recent launch of margin trading, Finance Magnates talked with CEO Jesse Powell, also one of the early backers of Ripple, about the exchange and his future outlook for Bitcoin:
There is increasing focus this year on Bitcoin as a technology, less as a currency. Does this threaten the future success of exchanges- as good as they may be?
Not at all. Those who aim to separate bitcoin from the Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Read this Term don't understand Bitcoin. If you want to write something in the ledger, you need ink, and bitcoin is that ink. If we arrive at a world in which conversion between bitcoin and other currencies is no longer a necessary service, I would say that we succeeded in our mission. If more successful blockchains emerge, I would expect more viable Cryptocurrencies Cryptocurrencies By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw By using cryptography, virtual currencies, known as cryptocurrencies, are nearly counterfeit-proof digital currencies that are built on blockchain technology. Comprised of decentralized networks, blockchain technology is not overseen by a central authority.Therefore, cryptocurrencies function in a decentralized nature which theoretically makes them immune to government interference. The term, cryptocurrency derives from the origin of the encryption techniques that are employed to secure the netw Read this Term to emerge, and therefore even more demand for exchanges.
Do you anticipate future price volatility or stabilization- if the latter, how/where will prices find equilibrium?
I think we have a lot of volatility to come but as the market becomes more liquid and bitcoin becomes more widely adopted and used in commerce, we'll see greater stability. Right now volatility comes from it being so thinly traded--it's like a penny stock. The market cap is only $3.3 billion today. Even $360 billion businesses like Google look volatile compared to multi-trillion dollar businesses, like the USD. So, it's all relative.
Are you seeking to advance past the regulatory "grey area" and attain some official blessing as a regulated entity- similar to how itBit is trying in the US?
To my knowledge there is no "grey area" in the US. Most exchanges that are servicing US clients are doing so illegally. They're taking on huge contingent liability, and after what happened to Ripple Labs, I'd be worried if I were them. Whether itBit's trust company hack will be accepted by all, or even a majority of the states has yet to be seen. I do hope it works because the money transmission regime makes little sense for exchanges. We are looking for ways to operate legally in the United States.
Was the recent stability in bitcoin prices a factor in introducing margin?
Yes, it was one factor. It certainly makes it easier to test things out, and for our clients to play around without losing much.
What kind of (automated?) risk management protocols are being employed for situations of high volatility?
We have margin calls and liquidations to help clients protect their positions and to protect the exchange against accounts going negative. We have a limited global pool of funds available for margin, and each account also has its own individual limits. We feel pretty comfortable with the controls we have in place.
Would margin be scaled down from 3:1 or removed entirely should volatility return in a major way?
Sure, if we felt that the volatility was beyond our ability to control the risks, we would remove or scale back the feature. First and foremost we exist to provide a market for spot, deliverable bitcoin. Advanced features for traders, like margin, are secondary. We want people to have a good experience and if we feel that a particular feature is going to cause a lot of clients to have a bad experience, we'd remove it or restrict it to those who have shown that they are aware of and accept the extreme risks involved.
The news release said margin will be "3:1 at launch"- will it be raised in the future?
Yes, we intend to raise margin up to 10-20x as we're better able to control the risks.
(Such levels would be by far the highest for spot trading in the industry, and rival those found in CFDs and other synthetic products.)
Any new currencies (fiat/digital) planned for future addition?
Canadian dollars are coming within the next two weeks.
How about new trading instruments (e.g. futures)?
We are exploring futures, deliverable forwards, options. Our primary concern is that in offering new trading instruments, we avail ourselves to new regulatory authorities, and new bodies of law with which we must comply. We have to do the math on whether the expected revenue is worth the cost of compliance. Unlike most other exchanges, Kraken takes compliance very seriously.