Kraken is a prominent cryptocurrency exchange in getting an endorsement for a Market in Financial Instruments Directive (MiFID) license in the European Union. Now with that, it can sustain crypto derivative trading services for professional traders in all EU countries. This is going to boost Kraken’s position in the European crypto market by almost enhancing its service portfolio.
Acquisition of Cypriot Investment Firm
Kraken got the MiFID license after acquiring a Cypriot Investment Firm. A transaction was approved by the Cyprus Securities and Exchange Commission, whose approval allows Kraken to have been recognized as a MiFID-licensed entity in the EU. The purchase is part of Kraken’s strategy of attaining a compliant framework for derivatives trading in the European market.
Rolling out Crypto Derivatives Trading
With the new licence, Kraken will be in a position to offer regulated and fully compliant derivatives products in Europe. Advanced traders will, therefore, be in a position to gain exposure to a wide selection of digital assets without holding them directly. The derivatives market is particularly significant in Europe where it is one of the most active sectors in crypto trading.
Kraken’s derivatives trading services will allow traders to use various collateral currencies to back their positions, which will be flexible and capital efficient. The exchange has announced that it will start working on launching these services in the EU in the coming months, following regulatory compliance requirements in individual member nations.
Previous Setbacks and Regulatory Challenges
The MiFID license approval is a very positive development for Kraken. The company faced several regulatory obstacles in different countries:
India Ban: In December 2023, Kraken was blocked in India for failure to register with the Financial Intelligence Unit (FIU).
Australian Fine: In the last fiscal year, ASIC fined Kraken $5.1 million (approx. ₹43 crores) for operating without necessary licenses, risking financial losses for the Australian investing community.
NFT Platform Shut Down: Kraken shut down its NFT market in November 2023 as interest in the market became too low for the exchange to continue with resources tied up in the area.
Kraken Expanding International Operations
Founded in 2011, Kraken is headquartered in San Francisco, USA, with owner Payward Inc., founded by CEO Jesse Powell. The company claims to serve more than 13 million worldwide customers. Kraken has continuously and actively been expanding its global footprint, and its newly acquired MiFID licence strengthens its position in the European financial landscape.
Crypto Derivatives trading: What Are Crypto Derivatives?
Crypto derivatives are financial contracts that derive their value from an underlying cryptocurrency asset. Such instruments allow traders to speculate on price movements without necessarily owning the asset.
Types of Crypto Derivatives
As revealed by CoinSwitch, the primary types of crypto derivatives include the following:
Futures Contracts – A buyer and seller agree to trade a cryptocurrency at a set price on a future date. Such contracts are based on price speculation.
Options Trading- Traders have an option but not the obligation to purchase or sell an asset at a fixed price ahead of, or on, a given date.
Swaps- Two parties agree to exchange assets relative to how the underlying asset performs in the marketplace.
Benefits and Risks of Crypto Derivatives
Benefits:
Facilitate traders to experiment with digital assets through ownership.
Increase market liquidity and encourage diversified trading strategies.
Offer leverage and hedging.
Risks
High market volatility reduces the profits gravely.
Trading fees lower the return on investment.
Huge market experience is required to reduce risk.
The acquisition of the MiFID license by Kraken marks a strategic move toward strengthening its presence in Europe. Advanced trading products will now be introduced to customers by the exchange while maintaining regulatory compliance. Following the move, the corporation will have an opportunity to expand into the derivates market due to this emerging evolution in the global regulatory environment.