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Crowds watch as a giant inflatable octopus is paraded through the streets in the Whale's Parade during the Aste Nagusia fiestas in Bilbao
Reuters/Vincent West
The long tentacles of the law.
REGULATE THIS

The Kraken crypto exchange responds to a New York legal inquiry in the snarkiest way possible

By Joon Ian Wong

Cryptocurrency traders don’t need—or even want—to be protected from market manipulation, according to the chief executive of the Kraken crypto exchange. That is one of the statements made by Jesse Powell in response to an inquiry by New York’s attorney general, Eric Schneiderman. Last week, the state prosecutor asked Kraken and 12 other exchanges for more information about how they conduct their business, as part of a “broader effort to protect cryptocurrency investors and consumers.”

Powell had earlier told trade publication CoinDesk that the firm didn’t intend to respond to the attorney general’s inquiry. But in a somewhat condescending and snark-filled blog post published yesterday, Powell says that for “most crypto traders,” protection from market manipulation or risky investments “doesn’t matter.” Neither do regulatory approval, licenses, or “conforming to Wall Street’s image” of how crypto exchanges should operate, he adds.

Powell claims what crypto traders really care about, among other things, is how tokens are chosen to be listed on an exchange, how often exchanges experience technical glitches that interrupt trading, and making sure their coins aren’t hacked. Crypto exchanges have a pretty terrible record on the latter two features.

Powell also revisits a historical grudge that the crypto industry holds with New York: the so-called “BitLicense” introduced by the state’s financial regulator in 2015. This is criticized for the heavy compliance burden it imposes on crypto startups, and is currently being revisited by New York lawmakers. Kraken pulled out of doing business in New York when the BitLicense took effect, calling it an “abominable” creature “so foul” and “so cruel” that even a kraken—the mythical giant octopus that the exchange is named after—couldn’t stand to confront it.

The conclusion to Powell’s blog post features this particularly spicy passage:

Kraken is always willing to work with regulators and law enforcement. Whether you think you have us by the balls or not, approaching us with some basic respect and having a conversation is always going to make the interaction smoother and help you get what you want faster than storming in with your “or else” list of demands.

Kraken seems to believe that the attorney general is seeking “free consulting” with its request for information from crypto exchanges. But woven into the dismissive riffs against the New York attorney general is an announcement that Kraken is withdrawing from doing business in Japan, where it had worked closely with the regulator. Powell gives Japanese regulators “a tremendous amount of credit” for their crypto rules, which serve as “a good example of what (relatively) reasonable regulation can do for a country.” But he adds that business became difficult in Japan amid the regulatory scrutiny that followed a $530 million hack of the Tokyo-based Coincheck exchange earlier this year.

For crypto exchanges, it seems that a lighter regulatory touch is no guarantee of a thriving business.