Kraken cryptocurrency exchange has been making big moves in recent days, but some early institutional investors are pointing out growing pains. As it’s well known that lesser exchanges have engaged in shady practices like Wash Trading (where an exchange buys its own sell orders to make it appear that volume is higher than it is), some professional investors transitioning in from legacy markets wonder about the credibility of Kraken’s first professional services.
In one publicised case, a seller created a stop order for a somewhat large amount of Ether (ETH). The sell order was only about £7500 worth of Ether, but this was enough to instantaneously reduced Kraken’s Ether market price by 4%. The sale was executed at a significantly lower price than what the seller had enumerated in the stop order. The experience was a bit like having the rug pulled out from beneath one’s feet, and the seller was forced to accept well less than the market price of the order as they set it up. (Note: Kraken CEO Jesse Powell has denied the validity of the original publication of this news.)
This is a bad look in more ways than one. Firstly, Kraken’s £12 million in daily Ether volume should have been more than enough to absorb £7,500 worth of Ether. As the trade was quickly resolved, it’s clear that there were enough people wishing to buy Ethereum. The complaining investor claims that this is a sign that Kraken’s volume is fabricated.
Some markets have fluctuated within Kraken’s exchange, what is the cause of this? Image: corey843.Shutterstock.com
There is also the issue of Kraken’s response. The investor posted online the response he received from Kraken support, which ended with this blithe statement, ‘you’ll come to find that this does happen once in a while no matter where you trade. For me, it’s part of the fun.’
‘Fun’ isn’t what institutional investors are looking for. Analysts have long proclaimed that crypto markets are too immature for mainstream and, especially, institutional adoption. Institutional investors represent billions of investable assets, but they need trustworthy markets if they’re to bring this money into the world of digital assets. Issues like (alleged) wash trading and order slippage prevent them from entering the space in earnest.
Fortunately, and despite this less-than-positive anecdote, Kraken seems to be preparing to level up its institutional investor services. Kraken recently acquired Crypto Facilities (an institutional investor services provider for the cryptocurrency space) in a 9-figure deal. Kraken has also been bringing on big fintech and investment industry talent, with new executive hires drawn from the ranks of JPMorgan, Citibank, Credit Suisse, and CME Group.
If we had to guess, we would posit that the price slippage issue mentioned above wasn’t the result of phony volume, but was instead a forgivable problem resulting from a still-young exchange finding its professional feet. In order to become a world-class investment services provider, though, Kraken must step up its game. Hopefully, issues like this will soon be a thing of the past.
Featured image: grejak/Shutterstock.com