Kraken Acquires Futures Startup In Deal Worth At Least $100 Million

Cryptocurrency exchange services provider Kraken has officially acquired regulated futures trading startup Crypto Facilities in an undisclosed deal valued at least $100 million.

Announced Monday, the “nine-figure" acquisition, the largest seen in the industry so far in 2019, will enable Kraken customers to trade spot, as well as open positions offering exposure to the future price movements of cryptocurrencies, all through a unified trading interface.

As such, Kraken CEO Jesse Powell framed the merger as one that would “massively accelerate” his company’s roadmap, enabling the San Francisco-based startup to sidestep years of efforts to obtain the licenses and approvals necessary to offer a competing service in Europe.

Founded in 2014, Crypto Facilities is registered with the U.K. Financial Conduct Authority (FCA), and the deal was approved by the regulator, the parties involved said.

In addition to offering cash-settled futures trading for bitcoin, bitcoin cash, XRP, litecoin and ether trading pairs, Crypto Facilities notably provides data to the CME CF Bitcoin Reference Rate, an index created in collaboration with CME Group and that powers that entity's U.S. futures offering, a relationship that will continue following the acquisition.

Powell told CoinDesk:

“The deal brings our total developer team to over 100, and will accelerate Crypto Facilities by enabling us to add more assets. We plan to launch more contracts in the medium-term and Kraken also has plans to launch more assets.”

Crypto Facilities CEO Timo Schlaefer will continue on at Kraken following the exit, retaining his title of CEO. The firm will remain an independent entity within the larger Kraken Group, the exchange’s umbrella company. Further, the subsidiary overseeing the index will also remain a separate entity within the larger framework of entities.

All 25 Crypto Facilities employees, Schlaefer said, will continue on with the company.

Looking forward, Powell added that he hopes the merger will help Kraken better compete within an increasingly competitive global exchange landscape. “The objective we have is to build the most liquid futures exchange,” he said.

Powell and Schlaefer also stressed the benefits futures trading would bring for customers, as they will now be able to trade futures on nights and weekends, extending beyond the 9-to-5 trading hours of current U.S.-based offerings.

“You can margin in real time, you don't have to provision for gap risk overnight or over the weekends, you can take less margin which is more capital efficient,” Schlaefer said.

Focused on traders

Stepping back, Powell framed the acquisition as one that aligns with Kraken’s desire to stay tightly focused on the needs of exchange customers, a select group of which the company is now courting as part of its next major fundraising.

Toward this, Powell voiced his aspiration that he’d like to continue the strategy, avoiding taking on additional venture capital and instead aligning financially with its user base.

Said Powell:

“The reasons to not do more VC is that we don't really need the money, and longer term it makes sense for the business to be majority owned by the users. We'd eventually like to have our interests aligned with users."

According to Kraken, the funding round, which would value the company at $4 billion, is set to close within weeks. Still ongoing, Powell said, is an effort to see if smaller exchange traders, those with less than $100,000 to allocate, could be allowed into the round in some way.

Even if the funding is yet to close, however, the reason for the financing is more certain, with Powell indicating a desire to use the money to complete additional acquisitions, estimating one to two more deals could take place over the course of 2019.

Future acquisitions could add to the exchange’s user base or product offerings.

Notably, the completed merger comes at a time when Kraken is also in the midst of a wider overhaul of its existing user interface, an initial version of which was released last week.

Crowded market

In conversation, Powell also spoke in more detail about how he believes the merger will position Kraken in what over the past few years has become a more competitive market for companies that provide consumers with the means to buy and sell cryptocurrencies.

In addition to exchanges like Kraken, in which users can buy and sell such assets for fiat currencies, Powell noted the development of platforms like Binance that have grown more quickly by sidestepping interactions with regulators.

“They’re not in the U.S., they're not dealing with regulation, they're not hooked up with banks,” Powell said of the difference between the firms.

More appropriate competitors, Powell suggested would be Luxembourg-based Bitstamp and Coinbase, the latter of which, while based in the U.S. has expanded services in Europe. (Kraken will not allow U.S. exchange users to engage in futures trading.)

Still, Powell expects the product, the only available futures offering for cryptocurrencies currently in Europe, to help Kraken continue to differentiate from the pack.

Powell concluded:

“Right now there isn't anything else. In Europe, we are the only regulated platform for derivatives and we're not aware of anything in the pipeline.”

Jesse Powell via CoinDesk archives