Code & Conduit Podcast: Kraken Crypto Exchange CEO Talks Regulation

Cryptocurrency exchange Kraken is strategizing on how to face an ever-evolving regulatory landscape.

Kraken CEO and co-founder Jesse Powell told Bloomberg Law the exchange—one of the largest in the world—was ready for increased scrutiny and expecting regulation this year. Powell said Kraken also believes in self-regulation and has tried to create several industry-led regulatory groups.

“I feel like we’re doing a pretty good job of regulating ourselves,” Powell told Bloomberg Law in a Code & Conduit podcast taped April 6.

But Kraken, legally known as Payward, Inc, and other virtual currency exchanges have come under state and federal regulators’ scrutiny in recent weeks.

New York Attorney General Eric Schneiderman launched April 17 an inquiry into Kraken and 12 other virtual currency exchanges, asking for more information about their operations and policies.

On April 18 Powell indicated on Twitter that the company did not plan to comply with the official’s request.

“Ordinarily we’re happy to help government understand our business, however, this is not the way to go about it,” Powell wrote, adding that the company discontinued operating in New York three years ago because of the state’s increased regulatory regime for virtual currency.

"Why don't you try extracting this information from those businesses actually operating in your state?" Powell wrote.

Powell told Bloomberg Law, prior to Schneiderman’s inquiry, that Kraken protects investors by listing only 17 tokens that have been researched by the company to trade on its platform. This practice protects the exchange from other fraudulent schemes, he said.

For example, other exchanges that list hundreds of tokens with less trading demand are more at risk for pump and dump schemes, where bad actors buy large amounts of a token to inflate its price, then quickly sell to profit from the rise.

“Kraken is very careful about assets it lists,” he said. “I don’t think we’ve ever had to deal with any pump and dump.”

Still, Powell said the company frequently talks with SEC officials and thinks new rules from the agency might change Kraken’s model. In March, the U.S. Securities and Exchange Commission released a warning about potential unlawful exchanges violating securities laws.

“The SEC in the United States seems like they really want to do something this year, so we may see some changes coming with that,” Powell said.