Kraken has big plans. The third-largest crypto exchange is bullish about the future of crypto and so are the users who buy and sell crypto on its platform. Kraken knows its customers well, releasing an internal study showing their primary motivation as FOMO and FUD. Compounding their anxiety, sometimes users end up waiting weeks or more to access their funds.
Despite internal controversy and an industry-wide regulatory onslaught, Kraken is plotting to overtake its crypto competitors to claim the mantle of the largest exchange.
The NY Times quoted a blog post by newly minted co-CEO’s Arjun Sethi and Dave Ripley, “To continue forging our path ahead and put Kraken in contention to become the largest crypto platform in the world, we need to be leaner and faster.”
There’s also the matter of the IPO that’s been in the works since 2021.
Kraken has business interests that need protection from state interference, so the company’s founder has been cementing its ties with the incoming administration. Most outlets have reported this process piecemeal, but Disruption Banking wants to present everything in one place.
Kraken, the Quirky Cult
Kraken has maintained a quirky, almost culty vibe, that appealed to crypto-libertarians and degens. Still, the company may end up more like Coinbase or Binance, courting institutional investors and day traders. It’s a yawning dichotomy and doubtless, there are internal forces pulling against each other.
As it grows, Kraken keeps tightening its belt and cutting its losses. Last month, it laid off 15% of the staff, as well as its COO and CTO, and named a new Co-CEO, Arjun Sethi.
Kraken is ostensibly maturing but its customers are still driven by explosive emotions, quite distinct from the calculated approach of an investment banker or retiree investing their 401K, but that’s where the leadership of the company is aiming.
Thomas Perfumo, Kraken’s head of strategy, told DL News, “I don’t really see anything holding back the big increase in demand, and possibly even seeing early signs of really ultra big kind of final boss allocators like sovereign wealth funds, endowments, and pension funds.”
Perfumo expects inflows to Kraken to double to $50 billion in 2025. Such growth would be difficult for any company, much less one as committed to its customers as Kraken.
Kraken has undergone various internal upheavals in the last few years, both due to the antics of Jesse Powell, the company’s founder, and the way he executes his vision, still calling the shots as chairman, after vacating the position of CEO.
Powell v. Regulators
Kraken is under siege by regulators and the FBI. Kraken may have fended off the SEC, but now the FBI is investigating Powell whose blithe self-confidence has served the company well, despite his storied past as an agitator.
Powell has open contempt for SEC Chairman Gary Gensler and has called out the SEC’s intimidation. Now, Powell may have a say in Gensler’s replacement, which would be poetic justice.
In March 2024, the FBI searched Powell’s Brentwood home and seized his devices as part of an investigation into whether he hacked and cyberstalked employees of a nonprofit he founded, Verge Center for the Arts. His lawyer also targeted in the investigation, emphasized that these allegations are in no way related to his role in the crypto arena, saying Powell did nothing wrong.
With potential imminent federal charges on his mind, Powell did what anybody in his position would do. Hat in hand, he made the pilgrimage to all the way down to Palm Beach Florida with a $1 million campaign donation to Mar A Lago and spoke to the incoming President. At some point, someone suggested they pose for a picture in front of extremely large lamps.
Powell has been playing ball with Trumpworld utilizing every corporate asset at arm’s length. Kraken executives have vocally endorsed Trump. Kraken has sought a seat on Trump’s promised crypto advisory council. And in early December, there were reported rumors that the platform would list the Trump and MAGA shitcoins.
Considering his legal exposure, Powell is likely also hoping Trump’s nominee for the FBI Kash Patel, reputedly a Trump loyalist, will sail through Congress.
Beyond that, Trump promises to bring on a crypto revolution in the USA, and the industry is hanging on his every word.
Perfume told DL News, “The potential clarity that we’ve just achieved with the US election outcome lends a lot of comfort to people who’ve been concerned about what it might look like for 2025, and this was a big break for them,” adding that he views the skyrocketing of Bitcoin’s price as “the industry digesting how quickly we might be able to move in the US.”
Chasing Coinbase
Kraken soldiers on, looking for leadership to implement the vision of its founder, which looks a lot like Coinbase.
The blog post by the co-CEOs warned, “We are making organizational discipline decisions to tackle this problem and eliminate layers.”
This includes shutting down the company’s NFT business and all associated subsidiaries and acquisitions. Evidently, Kraken was unimpressed by the rally of NFT’s after Trump’s election win. Although the asset class saw a 90% increase in value across the Bitwise Blue Chip NFT Collections Index, the price levels are still 81% lower than their 2022 high.
Kraken is now shifting focus to another product called Ink, its new internal blockchain, which will host decentralized applications or DApps.
Kraken tends to mirror the strategy of Coinbase, although targeting more sophisticated institutional clients with its Pro dashboard. Like Coinbase, Kraken jumped into NFTs. Now, again like Coinbase, Kraken touts its internal blockchain. The one significant exception Kraken made is not creating an internal coin, a praiseworthy choice that distinguishes Kraken from its competition.
Key Drivers of Corporate Profit: FOMO and FUD
In the crypto ecosystem, FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, and Doubt) have emerged as pivotal forces influencing not only individual investment decisions but also corporate profitability.
Kraken recently published an internal study that identified these emotions as key drivers behind user trading activity on the platform, with significant implications for both individual portfolios and market dynamics.
Specifically, 63% of Kraken users report that their emotionally driven decisions have negatively affected their investment returns, underscoring how FOMO and FUD can lead to costly mistakes. The study reveals that 81% of users polled have made choices under the influence of FUD, which often results in hasty, short-term-focused decisions detrimental to long-term investment strategies.
Conversely, FOMO has proven to be an even stronger motivator, with a whopping 84% of respondents admitting to making investment moves during price surges, driven by the fear of missing out on potential gains. This behavior is particularly pronounced, with 58% frequently and 26% occasionally acting on FOMO.
The preference for chasing gains over avoiding losses is starkly evident, as 60% of U.S. crypto holders cite missing significant price surges as their primary concern, in contrast to only 17% who worry more about missing price dips.
Despite 88% of investors acknowledging past missed opportunities for major gains, there’s pervasive euphoria, with 84% still looking forward to future market opportunities. This emotional duality of regret and hope directly feeds into corporate strategies, where understanding and perhaps even leveraging FOMO and FUD can lead to increased profits through strategic marketing, savvy product launches, or market manipulations timed to capitalize on these emotional responses.
Safest Crypto Exchange?
Kraken holds a unique position in the cryptocurrency exchange landscape, being the only major platform that can still boast of never having a security breach lead to a loss of user funds. A potential blemish on this pristine record involved recent security lapse, which Disruption Banking covered here, but the episode did not result in any loss of user funds.
Kraken is also alone in the industry for having voluntarily committed to proof-of-reserves, and Kraken remains the only crypto exchange to have done so.
However, the exchange faces a different kind of challenge when it comes to user fund accessibility, particularly under heavy trading volumes.
Kraken users who have found themselves unable to access their funds often resort to posting on Reddit to get their cases expedited by customer service.
Redditor HarveySpectre_007 expressed significant dismay, stating, “This is rigged. Trying to withdraw some crypto and it’s been greyed out – can’t click withdraw happened right after I removed one of my whitelist addresses! SOMEONE HELP!”
Similarly, another user, Fast_Web7973, shared their exasperation, “Just let me withdraw my assets so I can leave forever. Kraken is disappointing.” This plea underscores the urgency and frustration of users who are essentially locked out from managing their assets, highlighting a significant operational hiccup for Kraken.
The issues aren’t limited to one type of transaction or region. Jkick10 from Canada reported, “I am attempting to withdraw some XLM from the Kraken Pro app in Canada… when I hit next, a blank screen comes up and nothing happens. This has been ongoing for the past week.”
Professor Christian Catalini offered some context for what may be going on here, writing in an email to Disruption Banking, “My guess is that given the small number of cases it could be due to compliance checks—for example if they suspect the account may have engaged in illicit activity or is under review? If they wanted to slow down withdrawals you would observe hundreds of comments and requests for help and it would likely quickly escalate on X as crypto participants are usually quite savvy when it comes to potential solvency issues.”
Ariel Zetlin-Jones, a professor of economics at Carnegie Mellon University, agreed, telling Disruption Banking in an email, “For a few specific cases, I would imagine issues with KYC/AML could also lead to temporary suspensions of users’ accounts and to the extent these exchanges lack the same level of customer support as typical, US-based financial institutions I could see this taking time to resolve.”
Perusing the Kraken Support subreddit does give one pause, not just regarding long periods where people don’t have access to their funds, but especially when those people are amateur traders feeling extreme FOMO or FUD. Things can get messy fast. However, most users, even after vociferously complaining on Reddit, continue to use the platform and praise the response and resolutions executed by Kraken’s customer service.
The way forward
For the last decade, Kraken has been the weird little brother in the industry, alongside larger and more commanding peers whose founders have sometimes flown too close to the flame of the SEC under Gary Gensler.
Kraken’s leadership has navigated the highs and lows of the last few years rather shrewdly.
Kraken isn’t always doing the right thing, as Disruption Banking has uncovered in previous reporting.
Kraken doesn’t always win, as its settlements in the US last year and, this past week in Australia, show.
If the FBI has built a strong case against Powell, there may be pushback against any attempt by incoming Trump officials to quash the investigation. Regardless, Powell has successfully weathered internal acrimony at Kraken and external lambasting by the press before. It’s hard to forecast what might happen there, but it’s safe to say that Powell won’t go down without a fight.
In the interregnum before the dawn of a second Trump administration, it seems like (with or without its founder) Kraken’s day may have finally arrived.
Author: Laird Dilorenzo
#Crypto #Blockchain #DigitalAssets #DeFi
Laird Dilorenzo is a hatchet thrower and wordsmith.
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
