Kraken CEO David Ripley Has A Vision For Crypto | Wyoming Blockchain Symposium

It's a great question and I'll tell you, the past 18 months have not been without a few sleepless nights here and there. Every crypto environment, every cycle, whether it's a bear market or a bull market, it frankly brings a lot of intensity. When the bull market hits, it's all about how do we serve 10x more clients than we served yesterday. And this particular bear market that you just referenced was actually interesting. Going into this bear market—I've been in crypto since 2013—I was thinking about this coming into the previous bear market, I was like, you know what, we got this. I've done this several times before, we know how to do this. And boy was I wrong. I was completely wrong. This particular previous cycle brought a whole host of different challenges that we didn't really face before, primarily on the US policy side with the SEC and this chaotic regulation by enforcement and so forth, was really what we battled through. Not to mention Chokepoint 2.0. And we weren't successful without a lot of work both during that period and frankly the work that we did leading up to that period, setting the foundation that we built Kraken upon, was really critical.

I think we go out with a couple of different messages to the government regulatory community, in particular here in the US. The first is, Kraken has a significant business globally. We have a huge business in UK, Europe, Canada, Australia, and then the US as well. But the US is the minority of our total business. So I've been traveling to DC and interacting with them for multiple years now, but also doing the same in the UK and in Europe and so forth. And so we've kind of seen these other countries evolve. And the main message is the US is right now, today, largely being left behind in a lot of different ways, given the approach that we've seen here over the past year and a half. That's usually message number one. If you go to any technology sector, the US has led—marketplaces, Airbnb, Uber, we led. Previous to that, social—all the big social companies here, Facebook and Twitter and so forth. Back before that, search, e-commerce—it's all been led. Crypto is the first industry where the US has not been the focal point, has not been the absolute clear undisputed leader. And there's probably a handful of reasons for that, but certainly one of them is the position that the US government has taken here. That's message number one. And then message number two is really about the flip side—what are the benefits that we do see from crypto, how meaningful is it for individual businesses and innovation. Those are really the two things that we need to land with this group.

I think you're spot on. That's part of the story. Look, there is a better path for these individuals and consumers than what we see right now. There is a path. And yes, lo and behold, if you're going to take custody of crypto and be responsible for protecting someone else's assets, at the end of the day, we know that's going to be regulated—it is. And putting in place a responsible structure such that it minimizes loss of funds and so forth is really important. So I do think the end outcome, if that's really what everyone's concerned about, there's a way to accomplish that. I think one of the big testimonies of the industry is that the industry, despite that regulatory headwind, seems to be doing pretty well since the bear market. There's been a lot of price activity, more volume for Kraken, more volume for Coinbase, others. Obviously the Bitcoin ETF helped.

Again, I think you're mostly spot on. If we think back a year, year plus ago—negative sentiment, prices down, this challenge with the US policy environment, all these things. Calling bankruptcy lawyers. And the crypto banks in the US were shutting down—it's a whole story in itself. But fast forward today, it's positive sentiment, prices near all-time highs, hit the all-time high, just had the Bitcoin halving not too long ago. Before the Bitcoin halving we hit the all-time high or thereabouts—we were like, oh my gosh, it's happening too soon. And now we're just a few months past that. So I think we're setting up for a positive cycle. You have 17 billion plus, I think, net inflows into the ETFs—that's huge. A number of new different types of investors coming in via that path. And then the broader catalyst surge is there for crypto—all the benefits that we know about: digital gold, sound money, permissionless, programmable money—all these different pieces are there. So we think it's definitely a positive outlook. I've been through nine bear markets—so it's a sign of age, I'm not sure if it's any wisdom, but there's certainly age.

That's true. I assume you're nine cycles across all financial markets. Nine cycles—I still have my hair, although there's a lot of color in my hair. It wasn't going to stay this color after nine cycles. But I think that's right. As you actually live the cycles, you can look at them on paper and the answer is obvious—they last for a certain period of time and then you get past them. But it's tough to really act upon that until you've lived it and felt it. And so I think generally in crypto, the cycles are becoming more muted. The lows are not as low and the highs are not as high, just even with respect to price. That's a good sign of adoption.

To unpack this answer we got to look at the different types of institutions because they're not all the same. Being here for all the cycles that I have been, back in that 2016-2017 type cycle, we really saw high-frequency trading firms as one kind of quasi-segment of institutions come in—market making, arbitrage, and so forth. The venture capital firms came in with all the activity around many new tokens, taking positions in all the new assets. And then you had some family offices, high net worth, and so forth. But that was really mostly it during that cycle—fairly minimal. Then the previous one, 2020-2021, we saw a number of hedge funds—the headlines: Stan Druckenmiller, Paul Tudor Jones, and so forth. A number of those hedge funds came in and took positions. Pretty minimal beyond that. And then this cycle, I think we're seeing a little bit more of the same and the potential for more institutions to come in. Just this year, partly driven by the ETF, we see now—I believe it's over 50%, like 52% of all hedge funds have a position in the Bitcoin ETF. This is public data, which is an enormous number. Allocation is really low. And then the other segment of institutions that's kind of hit this year have been RIAs, where I think about a quarter of all of them have some allocation with their client base in crypto. That's also a really big number. Same story—really small fraction of the total, so there's more potential there. And I think for the most part, the behemoths—the pensions and the sovereigns—don't have that level of adoption yet. Wisconsin pension fund, I think, was one of the standouts, but it's even less so. So I think each cycle we're now seeing a different set of segments of institutions adopt.

I think they're really just scratching the surface as far as how they're coming in. Like I said, there's really only a handful of examples here. This is obviously big money—they lean more conservative than, for example, a hedge fund or certainly a high-frequency trading firm. So whether we start seeing more meaningful adoption this cycle is a question, but I would honestly lean towards—over the next two years, I would lean towards yes, that we're going to start seeing some incremental adoption among those segments.

There's a number of ways to take this. I kind of gave you a little bit on the geographic landscape for Kraken and the markets we play in. Probably the next thing to talk about, particularly going forward in that time frame of the next few years, is really about client segment expansion for us. This started some years ago, but Kraken historically has really been incredibly strong with our individual advanced traders, individual pro traders—kind of almost that Interactive Brokers client type. And we've really just won that space and been really strong there, all built on a foundation of security, compliance, great service. And now, and in the previous few years and in the few years to come, we're moving into client expansion on both sides. Moving towards more casual investors and traders—we're building out a lot more offerings for that group. And then also institutions is another big growth area for us. We started this several years ago and we're really ramping our product offerings for both. On the institution side, we're probably one of the top crypto platforms and businesses in the world that bring the full portfolio of offerings. We launched qualified custody this year. We have a full trading liquidity venue—both spot and derivatives. We have all the account management functionality. And again, built on security, compliance, and actually a world-class service team. A bunch of them are here as well today, so hopefully some get a chance to meet.

I didn't even get mine yet.

I'm sure that hit your annual budget, but I'm grateful.

As far as I look across the industry, this is probably more like a near-term—not a threat to the industry, but something that we know is going to happen. There's a lot of companies out in the crypto space, based here in the US and in every other part of the world, and not all these companies are going to succeed. Some are going to fail pretty badly, with lost funds and so forth. That next black eye—I mean, FTX and whatever it is—there's going to be some other negative event like that in crypto. Hopefully it's not as big as FTX. I guarantee it's not going to be Kraken—that is a definitive thing. But there's going to be—it's going to happen. So I think those of us that are trying to do things the right way really got to be more vocal, because what we saw last time is a lot of vocal from what ended up not being the best platforms out there.

It's a good question why we haven't seen more adoption among a number of the different Wall Street firms. First of all, we've seen some—Fidelity's team is out there, they've been long supporters of crypto. So we've seen some from those that are more forward-thinking, technology-minded. On the institutional side, the big banks, the institutional brokerages—they're creeping in. They kind of crept in last cycle and then pulled back after they saw some of the challenges, the negative events, and the US regulatory pressure. And I think they're starting to lean in a little bit more. Morgan Stanley had this very simplistic announcement that they're going to now allow their advisers to recommend the Bitcoin ETF—they were one of the firms that was very much distant from crypto. So I think it's going to happen. For Kraken, this is a beautiful thing—all these things are beautiful things, the ETFs, any adoption anywhere. It brings more people into crypto, more awareness. Our mission is to grow the adoption of crypto, so from that standpoint, it fulfills our mission.

Just to give us a little variety here, I'll go to the DeFi story. DeFi and DeFi networks really came about—the summer of DeFi back in 2020. It might not actually receive quite as much attention in some ways, but this entire ecosystem of DeFi lending networks, decentralized exchanges, continues to grow even through the bear market—increasing total value locked. So I think that whole on-chain world, and really the promise of crypto, is going to continue to grow. That use case was new back then and it's maturing now, and it's going to continue to mature and grow in adoption. I think that's a big one.

Oh gosh, that's a good one. We talked about a lot of different things here. Look, I think from Kraken's standpoint, maybe go back to the optimism for the industry. Probably what I'll go towards is the Kraken mission and what we see as the value of this whole industry. It really is about freedom, innovation, individuals being able to have a seat at the table, financial inclusion, and all these really noble end goals that I know will be realized by crypto. It's really just a matter of time. That's kind of the real big picture of why we're here and why we do what we do.