Mixing it Up — Banks and Bitcoin

Sep 22, 2020


The kraken is a legendary cephalopod-like sea monster of gigantic size in Scandinavian folklore. According to the Norse sagas, the kraken dwells off the coasts of Norway and Greenland and terrorizes nearby sailors. Amidst confusion and widespread ignorance about cryptocurrency, the kraken has made its way to the shores of the U.S.

Kraken, a Wyoming-based cryptocurrency exchange, announced on September 16, 2020 that it has received a U.S. bank charter. “The state of Wyoming has approved Kraken’s application to form the world’s first Special Purpose Depository Institution (SPDI), tentatively called Kraken Financial,” the company detailed. Kraken Financial is now the first digital asset company in U.S. history to receive a bank charter recognized under federal and state law to provide deposit-taking, custody and fiduciary services for digital assets. Wiring funds, ACH payments and IRA accounts will all now be available for digital asset holders.

New York State

Kraken pulled out of New York in 2015, after executives saw New York’s BitLicense as too invasive. Becoming licensed in Wyoming as an SPDI completely mixes this up.

An SPDI is an extremely specific type of bank. Deposits are not insured by the Federal Deposit Insurance Corp. (FDIC), so Kraken Financial is required to hold 100% of the assets of its depositors. This removes some of the insolvency risks which apply to traditional banking who are permitted to do fractional lending, holding only a small portion of customer deposits in bank reserves and lending out the remainder. Additionally, crypto deposits are not pooled assets the way dollars are in a regular bank. Your digital assets are exclusively yours; in case of a hack or theft you remain the legal claimant for your assets.

What Does This Do for Kraken?

· Kraken Financial becomes the first company overseen by Wyoming’s dedicated supervisory program tailored for digital assets and their specific risks. It is NOT subject to bank holding company regulations.

· It becomes the first company to seamlessly integrate traditional banking and the federal payment system into existing crypto products.

· Kraken’s SPDI charter allows for recognition and reciprocity with other states including New York and Washington state, whose residents Kraken has been unable to serve to date.

· The license will help Kraken reduce its dependence on third-party financial institutions, their software APIs, and regulation.

The Upshot?

Stay tuned. Cryptocurrency adoption is happening at a more rapid pace than anyone imagined. “Although fictional and the subject of myth, the legend of the kraken continues to the present day, with numerous references existing in film, literature, television, and other popular culture topics[1].” Only this time, the monster is coming after the banks.

[1] https://en.wikipedia.org/wiki/Kraken