TL:DR Kraken Acquire Crypto Facilities for $100 million, now offers futures trading for Bitcoin, BCash, XRP, Litecoin and ET trading pairs
Kraken, one of the largest crypto exchanges, announced yesterday that they had acquired Crypto Facilities for a staggering $100 million. This is one of the most significant acquisitions in the crypto space, and among the first to involve a futures trading startup.
Crypto futures are a way to trade the future price action for crypto assets. Crypto Facilities is a UK based startup that offers cash-settled futures trading for bitcoin, BCash, XRP, Litecoin, and ET trading pairs. The company also provides data to the CME CF Bitcoin Reference Rate.
With the new acquisition, users on Kraken will be able to trade spot prices and bet on the future prices of the listed cryptocurrencies.
Crypto futures are unique because they allow traders to bet against the market; you can short coins that you estimate will decrease in price as opposed to just selling them (or “borrowing” to buy later).
Futures also provide access to leveraged margin trading. With leveraged trading, you can buy several times the amount of crypto you have to place a position. If the price moves in your favor, then your profits are a percentage of the total amount you borrowed. For example, if you buy a long position for $500 worth of BTC at 10x leverage, you are trading actual position of $5,000. And so if the price goes up 1%, you’ll gain $50 as opposed to just $5.
Lastly, futures allow you to hedge against your portfolio. This is particularly useful in a bear market since you can protect and minimize the volatility of your portfolio without risking or making much more positions.
Futures do have some downsides though: Their fees are generally high, and in the case of leverage trading, you make more money when your leveraged trade goes in the direction you bet on, but you also lose more money if it goes against you, so it’s a higher risk-reward strategy.
What makes it worse are liquidations. Liquidations occur when the exchange you trade on limits how far the trade can go against you before it forces you to sell your position. When trading at 10x leverage, you may only be able to lose 10% before the exchange sells your position and you have lost all of your own money.
Ultimately, futures trading provides a more dynamic and exciting environment for traders to make money. With Kraken now entering the futures trading market, it’ll be interesting to see whether it can begin to take away market share from the more dominant players like Bitfinex and Hong-Kong based Bitmex.
What also worth mention is that Kraken, following its latest rebranding, is seeing itself as leading player among the crypto exchanges. Kraken is probably the oldest of the known crypto exchanges, as it was founded on 2011 by Jesse Powell. Unlike its competitors, Kraken is compliant under the US regulations, and only in 2017 FIAT trading was added to it. Kraken also hadn’t been involved in a major hack.
And lastly, the crypto is still alive. As long as the money comes in and there are acquisitions such as the above, we can definitely say that crypto is not dead.