Kraken Given Green Light To Create America’s First Crypto Bank
Cryptocurrency exchange Kraken has been awarded a US Banking Charter, handing it a licence create America’s first crypto bank.
Kraken announced earlier that the state of Wyoming approved Kraken’s application to form Kraken Financial, which can form a ‘Special Purpose Depository Institution’ (SPDI) bank.
The charter will allow Kraken to offer a seamless transition between crypto and fiat system, and the San Francisco-based crypto company will custody digital assets and fiat currencies for its customers.
The bank is limited to certain states, but will offer its clients the capability of receiving salaries in cryptocurrency, as well as hold cryptocurrency with the bank.
Kraken Financial’s CEO, David Kinitsky said the company ‘expects to launch either later this year, but most likely at the beginning of 2021.’
The SPDI banking charter means Kraken Financial will become a “custody bank”, and will have to maintain all of its customers’ reserves at all times.
This means Kraken Financial will not be allowed to fractionally reserve (print out of thin air) customer assets like other banks, and it won’t be allowed to issue loans from its customers deposits, but it will be able to issue loans from its own cryptocurrency holdings.
‘Right now, we are prohibited from lending on the US dollar side,’ said Kinitsky. ‘There are some provisions in the statute that enable us to facilitate customer-directed lending of digital assets. And so we would anticipate conducting that type of lending activity.’
It’s Quite Fitting That Kraken Is The Crypto Chosen One
It’s quite fitting that Kraken has become the first crypto company to be handed a banking licence.
The cryptocurrency exchange has long had a tradition of transparency and security, something missing from most cryptocurrency exchanges.
Kraken exchange is one of the longest running exchanges, and has built its reputation on its security and transaparency.
The exchange has had little downtime since launching in 2013, and has some of the best security in the cryptocurrency space.
The exchange regularly undertakes the optional Proof-of-Reserves audit to prove it has 100% reserves – something all other exchanges refuse to take.
And being the transparent anomaly that Kraken is, the exchnage even has a 24 hour customer service – something that is definitely lacking from all other unethical exchanges.
So it’s good to see Kraken’s integrity paying off, in a big way.
How Will Kraken Financial Be Profitable?
Kraken intends to introduce new services, such as crypto debit cards and staking services, over the next few years, but in the meantime its profits will mostly come from transaction fees.
Kraken’s new banking license will allow the company to apply for an account at the Federal Reserve, which means they will no longer have to rely on third-party banking infrastructure for crypto-fiat transactions, and will be able to charge conversion fees.
As well as charging for conversion fees, the banking side of Kraken will be able to charge for crypto deposits, and they can have set charges for bank wires and bank-to-bank transactions.
‘Those are the standard mechanisms for banks to make money outside of lending,’ said Kinitsky. ‘New products, qualified custody, wealth management [and] other types of asset classes will have new revenue streams as well. But to start, it’s going to be a very standard banking commercial model.’
Wyoming resident and Bitcoin bull Caitlin Long has been working on the regulatory side of things, and she tweeted in response to Kraken’s announcement.
The founder and CEO of Avanti Financial Group said it had been a unanimous decision and that all 27 board members had verified the proposal.
Long, who has banged the drum for helping to make her native state of Wyoming an oasis for blockchain companies, helped form, and is a member of Wyoming’s Blockchain Select Committee, where she and many others have worked to make this and future crypto banks a reality.
This is a Major Boost for Kraken and the Crypto Space
It seems like its one good news story after another. The 2018 bear market is in the distant past now, as all the institutional infrastructure is being laid out.
But all of this was being conducted during the bear market, and we are now bearing fruit of all the hard work from everyone working in the cryptocurrency space.
As well as Kraken’s banking charter approval, we have seen public company MicroStrategy invest $425 million in Bitcoin, and institutional investment funds such as Grayscale reach new all-time highs with their AUM, and even behemoths like Fidelity announce its Bitcoin custody solution.
2018 was supposed to be the year of the institution, but it didn’t turn out that way. 2020 might be the worst year on record for many, but it might just turn out to be the Year Of The Institutions for the crypto space.
Until 2021 supersedes it, I expect.
Author: Tommy Limpitlaw
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