Bitcoin Back and Better Than Ever, with Kraken CEO Dave Ripley

Doing well, how about yourself?

Yeah, well, it is nice to see the markets moving, obviously the price moving, a lot of positivity as well that we see. Clearly there's the ETF event that happened. It's really great to see versus the negative news cycle that we had early part of '23 and obviously late '22 and all that time period. Look, as far as this cycle, I started in crypto in 2013, and that was a bull year if you will. I jumped into a bull market soon thereafter. I do spend time looking at the four-year crypto cycle. At Kraken as well, there's been this pattern that is roughly aligned with the halving schedule. You kind of see that peak, that new all-time high, 18 months on from the halving roughly. But if you really look closely at the various cycles, they're not identical with regard to timeline. The previous cycle kind of started earlier than the one before it. If we're starting a new bull run here, this would mean we're starting earlier than even the previous one. We're already revisiting all-time highs now before halving, whereas in 2020 we didn't revisit all-time highs until December, I think it was. So we are starting a bit earlier. This also could mean that we finish earlier as well. It's not surprising if we really do have this four-year cycle pattern that people are going to try and jump in front of it, particularly given we have this positive event with the Bitcoin ETF. So to the extent we're hitting off a cycle, yes, it's earlier than we've seen in the past, getting to these levels before the halving. We'll have to see how it plays out. It could mean that given we're starting earlier, it might still be a 12 to 18 month time period that we go through a real positive market environment, and therefore it may not take all the way until the end of '25 to get to that new peak.

Yeah, I mean, we could certainly go down the rabbit hole of what is technical analysis and trading, and I would be ahead of my skis if we were to do that. But to the extent that there is a pattern out there with regard to how a market behaves, it becomes identified by various individuals, and that basically almost removes the pattern, creates a new one. So you get into a lot of complexity of technical analysis and trading in markets and how they behave. But yeah, to the extent that there is some repeatable pattern out there, you're going to expect that it can't really last that long, because if that is the case, people are going to jump in front of it.

Yeah, I think one of the big questions that people are trying to figure out right now is among the billions that have flooded into these ETFs, what does it actually represent? Is it the same folks just using this new instrument? Is it the degen set of tradFi? I'm sure this is something you guys have thought a lot about, so I'm interested in your take on what these ETFs represent right now and what they may represent more in the future.

This is a great one. I'll bring you into the fold of what the Kraken plan is, the annual plan for this previous year. We organize a plan using the OKR structure, objectives and key results. We have five big ones at the top level for the company. This previous year, one of them was 'prepare for the bull.' Maybe not surprising, but I don't know that that would be the case for all companies out there, having seen what they saw in 2022 and into early part of '23. But Kraken's been around for over a decade, and we absolutely are certain that Bitcoin and crypto are going to be incredibly successful, adoption is going to grow, it's going to go up and to the right, even though it's not going to be a straight line. Five years from now, a decade from now and more, we're only going to see hundreds of millions and then billions of people that have adopted crypto. So for us, it's absolutely the long game. In a period that is a challenging year with negative news cycle and adoption down, volume's down, obviously impacts financials, we still have this objective of 'prepare for the bull.' What does that mean? It means a number of things. It means continuing to invest in scalability of our systems so that when volume does come back, we don't go down and are unable to service our clients. That's clearly problematic for those that have real assets and money in this space to be able to access that money and trade when they want to. Operationally, that's probably even more challenging than the scalability of the systems in some ways, because it's fairly difficult to scale up an operational process. For example, our client engagement agents, we have several hundred of them. All of a sudden our volume of support requests goes 5x. We don't necessarily turn around and have 5x the people on the team the next day. But how do we think about that? How quickly can we get to a place where we have 5x the capacity on the team to handle that many more requests? Those are a lot of things, a combination of automation and how we're able to add to that team over a short period of time. So yeah, I think it's frankly very purposeful. Even during a year that had a number of different challenges, we were certainly investing for meaningful growth.

That's certainly an aspect of it. In some ways, those periods are nice to be able to catch your breath, because when the market's moving so fast, we have an influx of a huge number of new clients. It's all hands on deck, doing what we need to serve those clients, add new clients to the platform. So in some ways, it does provide an opportunity for us to catch our breath, focus on some of these things to really prepare the business, prepare our platform operations for that next go.

It's a good question, and I don't really have the answer to this one. I don't know. I don't have anything in mind frankly that this is where we have a vision of 'here's where meme coins go and it's really society-changing or significant or meaningful.' Much the same as PFPs for NFTs. I think that was a like many things, given that there's value attached, during these cycles they can get ahead of themselves. But that's going to be a use case, PFPs are going to be a use case via NFTs always, I think. Just the same as there have been collectibles historically, whether it's trading cards, Beanie Babies, you name it. There have been collectibles throughout history, and I think digital versions make sense. That doesn't mean it's going to be an enormous part of our economy. It might be that meme coins are similar in that regard. There are reasons why people are attracted to these things, possibly it's a social dynamic of the various people that own them. But I don't know that there's necessarily a vision out there that we are aware of.

Yeah, it's interesting. I don't think we have a strong thesis that meme coins become a huge part of crypto. They have been around for a while. I think they're interesting, they're fun, they play a role. I think they'll continue to be around. Whether they're a big use case of this cycle, I don't know. It might be a little bit surprising if that's the case unless something more gets added to them, because again, they've been around for some time. When was Dogecoin launched? Probably in 2013 or something like that. So it's been around for a while. So we don't really have a perspective that this is the use case of this cycle and it's really going to explode. Of course, interesting things in crypto happen and anything's possible, but that really isn't our perspective. It's like, hey, they've been around for a while, they're going to continue to be something that's fun and interesting and drives some attention for some people. Again, maybe short of some new interesting innovation that happens with meme coins that makes them that much more interesting to a greater number of people.

Yeah, I think that is what we're talking about. Frankly, that is the mission of Kraken in a lot of ways. There are a number of things that you hit on there that are really meaningful. One is, because we believe in these incredible benefits for everyone's society around financial freedom, all these various pieces, but one of the things that happens with adoption is the more people that are already in crypto, the more it makes sense to build new innovations on top of these networks, because you have that many more users that are already in the space, right there and able to be part of your new use case. So the more it makes sense for innovators to build on these, and then it turns out that the use cases themselves can bring new people into crypto. Not everyone starts with Bitcoin store of value as their first use case. There are some people, for example, this last cycle, that got into crypto first because of an interesting NFT, or they got attracted to PFP collections like Bored Apes, or you name it. Some people started in crypto that way. Or someone who's a basketball fan with NBA Top Shot, interested in that NFT, and then they grow in their adoption across crypto over time. So I think this is the flywheel, this is what we see happening and has been happening, and the reason why we will be successful and will be something that basically everyone in the world touches many years from now, five, ten plus years from now.

Yeah, you nailed it. That is exactly my perspective on this. For me, it's cool that there are these different use cases and different doors in, different ways that people are able to experience crypto and get into it. But what's really awesome and powerful are the reinforcing effects. You had a number of these different use cases coming online like e-commerce, email, online media, and they were all stronger because the use case email was there and you could communicate with customer support easily, and online media you could view images online and see what product you were buying. So they all kind of reinforced each other. We're going to see the same thing in crypto, just starting to see it. Let's take two of the big ones: DeFi and NFTs, which is really a family of use cases including digital art. These two use cases are actually better given both of them exist. Take that example again: digital art as collateral in a DeFi contract, to gain some type of liquidity value. You see this already happening now.

Yeah, this is one of the things that potentially evolved my perspective on over time. When I first got into crypto, Bitcoin really was decentralization above all else, which is still technically the case today. I was an absolute maximalist on decentralization, censorship resistance, all these various pieces. Still true today, but what I didn't really understand the same way I do now is that there is a spectrum here, and that spectrum actually does have some benefits. What do we mean by that? You can go up and do something on an L2 with a little bit less security, a little bit less decentralization, but you can do other things with it. So you effectively have more hybrids. Take a stablecoin, particularly the centralized backed stablecoins. That is not as censorship resistant as Bitcoin itself, no way. You have the centralized entity that holds all the assets, they can freeze individuals' particular stablecoin. This is true of most all of them out there, but they're actually still a meaningful use case, and there are benefits out there. So the ability to use crypto networks for their benefits and some of the more traditional structures, having this hybrid spectrum, I think actually makes sense. Ideally everyone understands the tradeoffs of actually holding a stablecoin versus Bitcoin, because there are very meaningful tradeoffs between those two, but that doesn't mean they can't both actually provide a reasonable use case for individuals.

I love it. That is actually an important dynamic of crypto. Yes, decentralization, censorship resistance, these are absolutely incredibly valuable things. But the fact that it's also a free market and it's open innovation, and these are networks where anyone can go and innovate on top of them, is actually important as well. So look, if someone wants to go build a stablecoin on top of Bitcoin, that doesn't mean Bitcoin loses its properties for what it is and how awesome it is at censorship resistance. It's open. That's one of the meaningful things about being freedom and having a free market, that in these networks anyone can build on. So I think that's important, even if what's being built isn't as censorship resistant as that base layer Bitcoin or whatever it is. That's how it should be. Much the same as the ecosystem is open to launch a new network, and that almost is like a check and balance on a particular network. If it becomes too centralized, then that becomes an opportunity for some other network to launch. So again, that openness, permissionless innovation, is fundamental to a fundamental aspect of crypto.

Absolutely. I mean, it has become almost comical where the SEC sits within the industry. Fortunately, they are on a losing streak, they continue to lose now. The overreach and stretch here is just quite extreme and mind-boggling. It's not just people in crypto that are aware of this and know this. There are people across all parts of various different industries that are now becoming aware of this. Not just here, but there are a number of people in the US government, Congress, and so forth. I was over in Europe not too long ago, and spoke with a number of folks in government, regulators, lawmakers, members of parliament, and so forth. Their perspective is honestly not terribly different than someone in the crypto industry anywhere. The SEC seems to be taking a really suboptimal approach that raises eyebrows, gets the eye roll, again from people in government in all various different countries across the world. So I think this is becoming fairly widespread, the negative perception that they have brought on themselves. It'll be interesting to see how the rest of this year plays out on that front. I'm not particularly optimistic, but I am optimistic about the hand being revealed, let's say.

Yeah, it's a good question. Obviously we just got done talking about the regulatory dynamic, that's a little bit more applicable to companies like Kraken, but that's certainly one of the things that we hope moves in the right direction. From where we sit today, that's somewhat of a Kraken lens. I think there's a broader piece for crypto generally. It would really be nice if all of our learnings from previous cycles were perfectly understood and applied in this cycle. So when we talk about things like leverage, who and what individuals are going to trust with their assets, all these various different types of things, and the importance of security and all these various different pieces, it would be nice if we were able to, as an industry, as a group, somehow ensure that all of these learnings from past cycles were brought forward. The buildup of leverage, obviously that's maybe already happening to some extent. Of course, that's not a crypto thing, that happens in tradFi all over the place, not crypto unique at least. But yeah, I think that would be a great thing if we were able to continue to see great adoption but then remember these challenges that have come about previously and we learned from them.

Sounds great. Great being here. Thanks so much.