Kraken acquires crypto accounting specialist Interchange, aiming to serve institutional clients under one roof

Quick Take

  • Crypto exchange Kraken has acquired Dan Held’s startup Interchange, that offers crypto accounting and reporting tools 
  • Kraken CEO Jesse Powell described the acquisition as a sort of a match made in heaven 
  • The exchange aims to serve institutional trading clients under one roof with Interchange’s tools 

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A recent acquisition shows how San Francisco-based cryptocurrency exchange Kraken wants to serve institutional trading clients.

Kraken revealed exclusively to The Block on Wednesday that it has acquired trading services provider Interchange, a move that would allow the exchange to offer accounting and so-called trade reconciliation tools to its clients under the same roof as its trading and OTC services.

Interchange, co-founded by former director Dan Held, offers crypto accounting and reporting tools that help trading firms and hedge funds account for their trading across various venues, as well as for properly paying their taxes and reporting on a quarterly basis to their investors.

The acquisition was described as a sort of a match made in heaven by Kraken CEO Jesse Powell, who told The Block that there are a number of synergies between Interchange and real-time data portal Cryptowatch, which Kraken acquired back in 2017.

“Cryptowatch has been building these tools for the entire ecosystem, not just for Kraken,” Powell said. “Interchange road map was going to converge with a lot of what we were doing. We could have built this ourselves, but the [Interchange team] has this expertise already.”

Insiders tell The Block that accounting and reconciliation tools are much needed in the cryptocurrency market as most firms have to rely on their own internal systems. There are a very few providers of such tools in the market, apart from Interchange, a former executive at Coinbase told The Block.

The logistical nightmare many firms face was exactly what Held set out to resolve when he founded the firm. Under Kraken’s helm, Interchange will likely be able to scale beyond its 60 current clients since it won’t have to worry about the bottom line, at least in the short term, Powell said. And Kraken will also see some benefits. Namely, it could incentivize new clients to open trading accounts at Kraken. Such traders might be compelled by the one-stop-shop approach, the CEO said.

“The comprehensive approach is appealing. It will reduce barriers to entry and it is a big part of what our mandate is,” Powell added.

The addition of Interchange follows Kraken’s acquisition of regulated futures trading startup Crypto Facilities and the launch of its over-the-counter or OTC trading business. For some of its clients, access to all three of these offerings will be available side-by-side.

Part of Kraken’s unique strategy

The exchange’s strategy stands out in the cryptocurrency space. Rather than offering high-speed traders more goodies compared to retail traders, it is hoping a broad-ranging platform will appeal to all users.

While the market has seen a number of participants attempt to capture large trading clients with the promise of faster markets to which they can more easily connect, Kraken is avoiding such services, Powell said.

ErisX, for instance, is exploring co-location services, which enable high-speed traders to link up directly to exchanges within the data center that houses their matching engine. It is a service offered by Gemini and that at one point was being explored by Bitstamp and Coinbase. It’s a service that has long raised questions in traditional equity markets, namely in Michael Lewis’ book “Flash Boys,” which accounts the story of Brad Katsuyama’s build-out of upstart exchange IEX. Proponents of high-speed trading have argued that it provides liquidity, which drives costs down for mom-and-pop traders.

Interestingly, Kraken’s Powell, who himself has battled with New York regulators, could be looked at as crypto’s own Katsuyama clone in some respects. In past interviews with The Block, he said he was against co-location and other services which he views as providing specific traders unfair advantages.

“We probably share the same sentiment on a lot of this stuff. I don’t think faster markets are necessarily a better thing. The more complex the market is, the more it puts certain traders at a disadvantage,” Powell said.