Kraken Business Model and SWOT Analysis – How Does Kraken Make Money

Overview

Kraken, also known as Payward, was launched just two years after the launch of Bitcoin itself, so it is one of the most established cryptocurrency exchanges or brokers in the market. This does not imply that oldest is always the best.

But, Kraken has garnered positive reviews from the users because of its top-notch security, diversity of coins to choose from, and the ability to loan out your coins for rewards. Besides, Kraken is offering its services at a much lesser price point than most of its competitors.

Company Profile

Here is a brief overview of Kraken’s company profile.

Company NameKraken
WebsiteKraken.com
FoundedSeptember 2013
FounderJesse Powell
Key PeopleJesse Powell – Co-Founder and CEO, Kaiser Ng – CFO, Steve Hunt – VP of Engineering, David Ripley – COO, Marco Santori – Chief Legal Officer, Jeremy Welch – Chief Product Officer
HeadquartersSan Francisco, CA, US
Company TypeBitcoin exchange (private company)
Market Valuation$4.0 B
Key CompetitorsBitstamp, Binance, Gemini, Bittrex, Bitfinex, KuCoin

What is Kraken? A Brief History

There are numerous cryptocurrency exchanges operating today. Kraken is deemed to be the most interesting one among the users.

The history of Kraken is linked with the offices of the defunct digital currency platform called Mt. Gox. This platform initially operated as “Magic the Gathering Online Exchange.” Mt. Gox eventually became the first Bitcoin trading platform as it enabled the trading of cards for a renowned fantasy game.

It was in 2011 when the founder, Jesse Powell, visited the offices of Mt. Gox after the company’s security breach. While talking to Bloomberg News, Jesse Powell told about working on Kraken as an alternate for Mt. Gox in case the company gets shut down. As per the predictions, Mt. Gox closed permanently in 2014.

In the September of 2013, Kraken was launched after two years of testing and development. In its initial years, Kraken was limited to Bitcoin, Litecoin, and euro trades. It basically started as a BTC blockchain application that eventually grew into a pioneering cryptocurrency exchange script. About time, the company began offering exchanges for other currencies and margin trading.

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In July 2013, Kraken added additional US Bitcoin players in the flourishing payments and digital currency industry. Ultimately, the company formed the Committee for the Establishment of the Digital Asset Transfer Authority (DATA). The objective of the committee, as claimed by Kraken, was to establish DATA as the upcoming self-regulatory body of the industry.

Later that year, in October, Kraken discovered some significant flaws in the Namecoin protocol, and thus, it would not be including Namecoin until those flaws were fixed. The shortcomings were spotted by the former COO of Kraken, Michael Gronager, during the security analysis for including new cryptocurrency into the exchange list. 

Namecoin soon fixed the issues, and it was again listed on the Kraken exchange. After two years, this cryptocurrency was again de-listed, this time because of a decline in its trading volumes.

How Does Kraken Work?

Buying and selling cryptocurrencies and FX on Kraken is a straightforward process. Firstly, you have to create your account on Kraken. You can only initiate buying and selling once you deposit funds into your Kraken account. After depositing funds into your Kraken account, here is how you can place your first order.

Kraken has numerous options for trading and choosing the type of orders. We will try to keep things simple for you so that you can easily place your order and initiate your process of buying and selling.

The platform gives you an instant buy option that you can utilize as the quickest way to buy, sell, and convert crypto immediately. There is a ‘Buy Crypto’ button at the top of the page, which you can use for instantly buying a cryptocurrency. However, this option would not give you all cryptocurrency options. Also, the transactions carried out via instant Buy/Sell Services are subject to fees.

Next, select the currency pair. You need to be sure about the assets you would like to exchange. For instance, you buy Litecoin with your US dollars or sell Ethereum (ETH) for euros. View the trade button and select the pairs you will be trading from the ticker/quote bar near the top left corner.

The first currency in a pair represents the base currency, and the other represents the quote currency. For buying, you have to pay the quote currency and receive the base currency. In the ‘selling’ order, you sell the base currency and receive the quote currency.

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Once you have selected your trading pair, head towards the ‘New Order’ page and select the ‘simple’ form. Here, you will see three text boxes and the option to use a market or limit order. Prior to inserting the values into these boxes, it is crucial for you to know how market or limit order works.

A market order corresponds to the immediate execution as it matches with the limit orders already available on the order books. Market orders come with a relatively higher fee, called the taker fee. While placing a market order, you only get to insert the volume you wish to buy or sell and not the price.

The limit orders perform at the price you set or even better, as the market reaches your limit price. Limit orders incur maker or taker fees depending on when they get executed. If the matching order already exists and gets completed instantly, you will be charged the taker fees.

Now you have to submit your order by selecting your choice of either market or limit order with the buttons to the left of the Total field. Press the large buy/sell button, and you will be directed to an order confirmation screen for double-checking the order details. There is, however, the option of ‘skip order confirmation’ if you want to avoid the screen.

This is the time to wait for order execution. In case of a market order, the trade will be carried out immediately, and your balance will change. Limit orders may not happen right away, so you can keep viewing the status in the ‘orders’ tab. Funds can be withdrawn or utilized to make another trade.

Kraken Business Model

Kraken works similar to the other exchanges, which make money by charging fees and also getting a cut from the trade the users are making.

Kraken Unique Selling Proposition (USP)

One of the key features of Kraken is the high level of security that has never been hacked. You get to choose from a wide range of cryptocurrencies available on the platform—the platform margin and futures trading for some investors and also stakes rewards.

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Kraken incorporates advanced trading features and offers margin, stop orders, and crypto short sales. It also has a space called a dark pool, allowing the high-volume investors to hide their identity. Kraken offers exchanges for almost 60 coins and seven fiat currencies that are comparable with some of the best cryptocurrency exchanges. It boasts high liquidity, which implies that Kraken makes it easier to buy and sell at a fair price.

How Does Ramp Make Money?

Kraken makes money by charging fees to the users for trading cryptocurrencies via their platform. A tiny percentage of the total value is set as a fee when a trade is carried out using Kraken. The model is similar to the other exchanges. Kraken is not the cheapest in the market, but it demands lower fees than most other established platforms out there. The platform is reliable and also has a high trade limit. The users of the platform have had an excellent user experience.

SWOT Analysis of Kraken

Here is the SWOT analysis of Kraken to walk you through the crucial aspects of the company.

Strengths

  • Kraken is a secure, reliable, and reputable company that has never been hacked
  • It has high Bitcoin to EUR liquidity
  • Kraken allows bank transfers
  • Margin trading is also available on the platform
  • Kraken offers precise charting via TradingView
  • Kraken accepts some fiat currency
  • Kraken demands reasonable fees that are on par with several exchanges.
  • The maker-taker fees on Kraken are lower than Coinbase
  • Kraken has a dark pool where high-volume investors have the option to trade anonymously
  • Kraken enables the users to leverage a currency pair by up to 5 times and allows eligible pro clients to access up to $500,000 in the margin
  • Kraken has almost 60 coins and deals with seven fiat currencies

Weaknesses

  • Users have faced downtime and site errors
  • Kraken does not offer any phone support
  • The process of signing up and document verification can even take weeks for completion
  • Support response time is deemed slow by some of the users
  • Many of the options on Kraken are not available to US users.
  • No credit card or debit card deposits

Opportunities

  • The first half of 2021 has been a breakthrough for cryptocurrency, and there is an expected rise in the use of cryptocurrency, which eventually would broaden the customer base of Kraken

Threats

  • Market makers find Coinbase Pro better than Kraken
  • Reviewers say that Binance is easier to do business with and is more usable
  • You own your own software-buying journey with G2 deals
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