Kraken Plans to Expand in Crypto Derivatives in Wake of FTX Fall

Kraken’s crypto derivatives unit plans to expand its services, targeting a market void left by the collapse of former rival FTX.

(Bloomberg) — Kraken’s crypto derivatives unit plans to expand its services, targeting a market void left by the collapse of former rival FTX. 

London-based Crypto Facilities Ltd., which offers leveraged and cash-settled futures contracts in tokens like Bitcoin and Ether for institutional investors, is in talks with the UK’s Financial Conduct Authority to gain permissions that would allow it to custody a broader range of client assets in the country, Chief Executive Officer Mark Jennings said in an interview. 

Under the UK’s Client Money and Assets rules, also known as CASS, Crypto Facilities would be able to offer futures contracts denominated in the fiat currency it is holding for the client such as euros and pounds, Jennings said. That would represent an expansion on Crypto Facilities’ multilateral trading facility license, which it received in 2020.

“It’s a key driver as we expand out what we do in the institutional market across crypto,” Jennings said on Monday, adding that he expects Crypto Facilities to receive an updated CASS classification within the next six to 12 months. A spokesperson for the FCA said it wouldn’t comment on individual firms.

Derivatives trading is one of the most lucrative corners of crypto, with $1.85 trillion of total trading volume across centralized exchanges last month compared with $515 billion for spot trading, according to analytics firm CCData. FTX was among the biggest players before it unraveled in November, and exchanges like Gemini and Coinbase Global Inc. have since launched their own venues. 

Read more: Crypto Market-Making Margins Sink 30% in Post-FTX ‘Wake-Up Call’

Kraken bought Crypto Facilities in 2019, with the unit later gaining permission to custody cryptoassets under a separate registration with the FCA in 2021. Jennings cautioned that the crypto derivatives market is nowhere close to returning to its size in late 2021, when Bitcoin peaked at close to $69,000 and before FTX’s implosion shook confidence in the industry. 

“Prior to FTX we’d be hitting $700 million to $800 million a day” in trading volume, he said, adding that it’s now closer to $100 million. “We’re not at the pre-FTX kind of bull market volumes.”

Several US-based crypto platform have embarked on overseas expansions this year after regulators including the Securities and Exchange Commission and the Commodity Futures Trading Commission cracked down on the industry. Kraken stopped offering crypto staking services in the US in February as part of a settlement with the SEC. 

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