The big news today is the acquisition of the UK’s Crypto Facilities by Kraken and the deepening mystery surrounding QuadrigaCX.
First the Kraken acquisition. Kraken target Crypto Facilities is a futures contract provider and its data is used by derivatives trading giant CME to set its reference price. The venue is regulated by the UK’s Financial Conduct Authority and also offers index products.
Kraken’s audacious move means it is now the only crypto exchange offering both spot and futures trading to its clients.
The deal was surprising because of its size, described in a Kraken press release as being a “nine-figure deal”, which means it’s at least $100 million in value.
By Kraken’s own admission, Crypto Facilities has a customer base that is only measured in the “thousands” but its clients are frequent traders.
“I’m thrilled to welcome the Crypto Facilities team into the Kraken family,” said Kraken chief executive Jesse Powell in a company press release.
“We are excited to introduce eligible clients to these industry leading futures and index products. Over the coming months, our teams will continue to enhance and expand these offerings. We’ve got great stuff in store for traders and institutional clients in 2019.”
The acquisition is the largest ever undertaken by Kraken. The exchange began life in Europe and remains the largest player in euro crypto trading markets but is now based in San Francisco.
This positive news for the sector has to be balanced by the bizarre and costly (for its customers) news from Canada’s QuadrigaCX exchange, which is currently seeking protection from its creditors following the apparent death of its chief executive and founder Gerald Cotten, according to court documents obtained by CoinDesk.
According to those documents, the company has lost access to $190 million of company funds because the Cotten is the only person in the company with access to the private keys and/or the devices they are stored on.
The company’s clients have been having difficulty getting their money off the exchange for a number of months and it seems that it has been fulfilling withdrawals out of client deposits in the fashion of fractional banking practice.
Kraken boss Powell has expressed doubts as to the supposed death of Cotten, adding to the alarm of customers who fear that they will never see their funds again.
The death, reported in mid-January, may be part of an elaborate exit scheme according to one reddit user by the name of Palhello. The reddit sleuth noticed at least four of the wallets that the company was meant to have lost access to have seen outgoing transactions.
Further, researchers at Crypto Medication claims that the company funds held on wallet was overstated, with the true figure nearer $100 million.
It also seems that most, if not all, of the funds were not in fact kept in cold wallets but in hot wallets connected to the internet, which is extremely bad operational practice from a security viewpoint.
The researchers conclude:
“After completing the analysis, it is the author’s opinion that QuadrigaCX has not been truthful with regards to their inability to access the funds needed to honor customer withdrawal requests. In fact, it is almost impossible to believe that this is the case in lieu of the empirical evidence provided by the blockchain.”
In the court documents Cotten’s wife, Jennifer Robertson, has asked for auditors Ernst & Young to be brought in to safeguard the company operations and assets, such as they are.
According to Robertson, the company had no physical infrastructure and was run from founder Cotten’s laptop. The laptop is encrypted and a consultant has been hired to attempt to gain access.