Kraken, the digital-currency exchange that recently refused to respond to inquiries from New York’s top lawyer, seems to be warming up to regulators — at least federal ones.
The San Francisco-based company, founded in 2011 in the wake of Mt. Gox’s collapse, will probably register with the U.S. Securities and Exchange Commission as regulators continue cracking down on cryptocurrencies, Chief Executive Officer Jesse Powell said.
“We would probably get registered as a broker dealer and then an ATS,’’ Powell said in an interview Tuesday in New York, where he was attending an industry conference. “I don’t think it necessarily helps the business. I think we’re doing everything right anyway.’’
An ATS, or alternative trading system, is a trading venue that operates outside traditional public stock exchanges. Any new U.S.-based ATS must be approved by Wall Street’s top watchdog, the SEC, and is subject to its authority. Being labeled an ATS would bring Kraken — or any crypto exchange that pursued the distinction — more directly under the SEC’s oversight. The agency has been encouraging firms in the crypto arena to pursue ATS applications.
Photographer: David Paul Morris/Bloomberg
The SEC has said that platforms serving as trading venues for digital assets deemed to be securities will need to register with the agency as a national exchange, or qualify for an exemption. The regulator also subpoenaed firms and individuals behind coin offerings it suspects might be breaking the law, a person with direct knowledge of the matter said earlier this year.
To make registering with SEC worthwhile for Kraken, the closely held firm would need more clarity from the regulator about which digital coins are securities and how those tokens can trade legally, Powell said. For example, the SEC could provide some sort of amnesty for coins that are deemed illegal securities.
‘Bullies and Hypocrites’
Former New York Attorney General Eric Schneiderman, who resigned May 7 amid allegations that he had assaulted women, said in April that he had sent letters to Kraken and a dozen other crypto exchanges seeking information on their internal controls and how they protect customers. Powell dismissed the request in a tweet, calling the inquiry “insulting.’’ Schneiderman has denied the allegations against him.
“The AG doesn’t have any authority over us,’’ Powell said in the interview Tuesday. “Two things I really hate are bullies and hypocrites, and this guy is both.’’
Kraken stopped operating in New York after the state’s financial-services department in 2015 created the “BitLicense,” a special permit that would apply to virtual currency exchanges, which drew criticism from crypto companies for being too burdensome.
Despite Kraken’s clash with New York, the company appears open to working with federal regulators. Coin Center, a crypto lobbying firm in Washington, said Monday that it received a $1 million from the exchange, which will also match other contributions for the rest of May.
Kraken is also considering getting into stock trading, and potentially going public down the road, Powell said.
“If we could find a way to do that — to have the company’s stock traded as a token, I think that would be awesome,” he said.