CVA Podcast: Johannes Schmitt, Kraken

Transcript

[Music] hello hello this is your host trash ahmed and welcome to the bonus episode of season two of the crypto valley association podcast let's discover together the growing trends of this vast moving space and try to shed some light on the mysteries it contains today we have a very special guest joining us johannes schmitz director of banking and payments at kraken digital asset exchange founded in 2011 kraken was the first bitcoin exchange to have its market data displayed on the bloomberg terminal the first to pass a cryptographically verifiable proof of reserves audit and

one of the first exchanges to offer leveraged bitcoin margin trading we have a lot to discuss so let's dive straight into the hidden world of cryptocurrency trading hello johannes how's it going hi shiraz uh thanks for having me excited to be here that's it's a pleasure it's it's great great to have you and really really excited about this episode so maybe first one we can dive straight into it you can tell us a little bit about your first blockchain related experience yeah sure thing so i discovered bitcoin it was mainly just bitcoin in 2013. i don't exactly recall if it was may or april i think it was you know a little after that you know april high where a bit kind of i think reached like

100 because of that cyprus bail-in situation and i had a friend essentially who told me about it and it later turned out that friend had been actively mining bitcoin for almost two years but he never told me about it and so he told me about hey this is super exciting you should look into it at the time i was kind of transitioning careers i was my background is in philosophy i have a phd in philosophy and i was kind of trying to get out of academia because i didn't see any future in academia you know just the kind of publishing papers that no one reads and cares about and especially in the humanities and philosophy it's very very tough sometimes so i was looking to for other opportunities and so

first i looked at bitcoin i thought oh this could be interesting but then i i read it i guess i just fell into the proverbial rabbit hole read about it everywhere but then i did didn't quite make sense to me the first time around and then i guess i you know put it aside and then two three months later must have been the end of summer i re like discovered it and decided hey this is actually quite cool i don't know why it took me three four months but it's definitely that's definitely the truth and then i decided i want to actually work in this i want to see if i can work in this in this industry and then it just so happens that i was introduced to jesse powell a few weeks later and and jesse needed to desperately hire people because by that time we had

a kraken had i don't know a lot of unanswered emails it was the other the next all-time high just didn't happen it was november 2013 and so i talked to jesse i think at the time it was skype for like i don't know five minutes and you know just we hit it off and i got the job never sent him a resume and then i started working and at first i just had to kind of you know just put out some fires and help with a support backlog and also kind of manage the the german speaking social media community so that's how i got started sorry long-winded answer but i hope i did you know answer the question well it's wonderful yeah the good old days where you don't even have to send in a resume or a cv and you get the job

directly yes isn't it great yes it's wonderful to hear and it's it's great you joined kraken in december 2013 which is quite quite some years ago i mean can you tell us more about that journey from from then until now and a bit maybe about your current uh role within uh the company as uh from your title i'm guessing you're not just responding to uh to the emails no indeed i'm not i don't even know if i have access to the support software anymore if i wanted to so it's gonna be complicated so yeah i mean it's been it's been a very very exciting journey over seven years i did a number of different things started with lsat support community management we also had a

and this is kind of related to my current title we also had a happen to have a bank account in germany for client custodial funds uh and it's not a secret so i'm just gonna mention the name fedor uh in in munich and we've had that banking for a long time and so i was kind of as a german speaker i was also a natural kind of liaison with fedor and then i also did content creation because i have the phd philosophy people think oh you know you're philosopher you you must be good at writing um so i i did that a little bit dabbled a little bit in writing and and then i i moved into a managed managerial role in you know after having been on the support team for a while and then i moved into a role with a

little different focus which was more like on account management and sales so kind of bringing in new clients also looking at the very promising institutional client segment that was uh early 2018 when everyone was talking about institutions and institutions going to enter the market i again i pivoted to another role in in it was actually early 2020 uh when i was made uh director of banking payments and what i do in my current role is i coordinate the all the the relationship building and you know the main maintaining those relationships with all the banking and payment partners across the globe right so kraken obviously has a fiat exchange needs a lot of um bank accounts

a lot of payment accounts we do card processing credit card processing we have accounts in five major uh wealth currencies and and so so that requires a lot of maintenance work but also just you know you know outbound activity to get a new and better bank account and to support our client funding fiat funding flows oh okay well you've really seen syncret can grow from from where it was to to what it is uh today and really gone around like all different uh departments and you must know a lot of the processes i mean inside and outs and you're probably the best person to ask and what what the unique selling point of kraken is i mean i mean why should a cryptocurrency enthusiast choose your exchange over another yeah it's a it's a great uh

question for us so i i think there's two two things i mean one is probably trust because we've been we've been around for a very long time you mentioned 2011 i mean that's what 10 years and i mean yes uh i mean there's a lot of history here um to unpack but essentially we have a i think we have we have a very good reputation in terms of security over the years i mean there's a really good track record that's something that a lot of changes i don't think have to that extent so it's something we are definitely proud of and i think that also resonates with with the clients of course right because ultimately there is there is this counterparty risk that you have as a client that's that's only one factor and yeah i mean trust and security i guess

you could separate them out right to two distinct selling points of crack and where i think we have an excellent track record and where we can build this trust with the with the client that is required in this space where there's so many exchanges in this space right there's so many different exchanges there's been a time where there was like a we looked at coin market cap a new exchange was popping up every every day right so so it's a very kind of uh you know just unclear situation for a new someone who newly enters the market and so kraken is is is been there like you know and stands for like the stability and reliability that you don't otherwise happen in a space okay this is that's great too great to

hear and i mean you mentioned this a little bit before that the the institutions uh are coming and and so maybe you can tell us a little bit more like are they here now and and what your perspective is on on this collision between the traditional and the new financial world yeah i mean that was the mantra of 2018 right i mean uh i think i remember the was it uh new york consensus coined this consensus uh conference in in 2018 when everyone was talking about this right like i remember like we had we had a booth cracking a booth there and it was pretty exciting and there was a lot of all these institutions you know stopping by and having a chat with us i think goldman sachs was was there too and we were like super excited about that and

yeah it's just very few of those guys at the time actually like did anything in terms of actually started to trade on kraken or some of the other global exchanges we were waiting for it to happen in 2018 but it didn't quite materialize and i think now like fast forward three years entirely different right now there's real i think this entire space has gained a lot more traction and this just yeah and then just this like this the series of events that are super super bullish for you know institutions entering the market and this obviously starts with microstrategy you cannot not mention this

on this type of you know this type of podcast right michael saylor's done for the industry is is huge and you know we've seen of course we've seen the tesla announcement and yeah i mean as a as someone who uh has exposure to the s p 500 you know now if de facto also have exposure to bitcoin and that's that's that's huge and that's obviously very different from what happened in 2018 so i do think this is you know it is happening now it is still going to take a few years and this is not a thing that is going to be completed in you know a few months or even like half a year going to take longer but the process has definitely started i'm very confident that that's the case it's great it was wonderful to hear and so with this this growing

interest you also have a growing amount of people that are that are joining the space and you also that means there's a lot of new people that need to be educated on what cryptocurrencies are how to use exchanges and there are also more problems that arise with regards to scalability etc i mean can you tell us a little bit more about the the importance of educating these newcomers and kind of some of the the silver linings that this brings yeah yeah happy to do that so of course we've had a tremendous amount of sign ups and i think every like almost every exchange probably has probably faced a similar situation in in january january was a super busy month for for us i think it was busier

than the entire year 2019 in terms of trading volume and just like the amount of sign ups it just went through the roof you know that the the gme episode actually that really really helped help to drive a lot of volume a lot of interest a lot of web traffic to kraken and like a lot of people tried to get try to create an account within i think we had a 24 hour period where we had like over 200 000 sign ups and it's just like crazy and yes and of course that will have some some effect on you know unfortunately on the level of service that we provide to to clients and that's something we've identified as a top priority

we need to be even better at handling that and i think again like a lot of other exchanges are looking at the same problem an issue set of issues and and yeah stability uh so it's like just performance like in terms of not having any kind of downtime when it's not scheduled or is is certainly top priority and then the other thing is that we mentioned is just like you know stability or market stability i mean there's there is of course a lot of volatility in this market still i personally don't think it's going to going to end any time soon this volatility of course it's also an upper great opportunity for an exchange like kraken there's no no question that we like volatility but there's also of course these market

movements where like that's you know there are sometimes you know maybe related to certain behavior by clients who just are not familiar with how to best execute a trade right i mean that's we have we have a lot of clients probably that have haven't traded haven't traded equity haven't traded equities or other securities in the past and are just like new to trading and then i think that kind of causes some issues sometimes and yes education is key we're really trying to i think we've offered we've put out over the years a lot of educational material and we're continuing to do that it's really really i mean not just kraken but the entire industry still has a lot to do in terms of educating you know the clients of course

the the institutions also the media this i mean i don't know if you for us if you look at like you know i look at the german-speaking media and there's just so many so many prejudices and like just wrong assumptions and and just like things where i thought okay i thought we were beyond this and it's still there and so i feel like the amount of learning that that needs to happen in order for this asset class crypto to be ultimately successful and to be adopted by you know not just millions but billions of people is is still there's still some quite some work ahead of us but but hey i'm excited about it so that that's cool with me oh yeah definitely and yeah i think there's always this uh the opinion that well if you take the contrarian view you're gonna get uh more

followers etc and i think that some of the media is kind of rooting on but when you hear the volumes that you're mentioning of 200 000 signups in 24 hours that's just that's insane it's like that's like three percent of the swiss population in one in one day it's uh that's amazing and so there's no denying that uh it's it's really coming to light and maybe you can tell us a little bit more about your geographical positioning because uh as you mentioned you're currently in in berlin but uh kraken is based in in the us and then you have actually quite a significant uh footing in europe and even in switzerland i mean how come and and where do you see the potential of this specific market sure so kraken is as you said based on the us has always been based in

san francisco we are though we we view ourselves as a global company this has been this is not a recent phenomenon that's been our our mission for a while and we have a global workforce that's distributed across many many different countries and continents and you know this is also something a lot of us work remotely and i think also public knowledge that i think jesse has spoken about this that's part of our culture and yeah so even even covet in that sense so while it does disrupted certain parts of the business it didn't disrupt this this work culture that is largely remote because for us it essentially just meant somehow like

suddenly the the way we we chose to work was validated by the fact that you know millions of other people around the world suddenly also started to work remotely right for me was i personally was a very interesting experience because i had a lot of experience with working remotely before you know march 2020 and then suddenly everyone else was like oh you know and i'm like yeah tell me about it i've been doing this yeah so welcome the world and so but to kind of address this question about europe i mean europe has always been a very important market for kraken even though we've raised in the u.s europe has been our main market actually for a long time and it's still right now is you know we have we still buy market share with the biggest we are the biggest spot exchange in

in europe so so why is that i mean i think early on we just we were there in 2013 we launched in europe in the fall of 2013 and some of the countries were like we didn't i mean we didn't even launch in the us with like u.s dollar funding before we launched in europe so europe was really the first country or a region the eu where we offered fiat funding right and we had we had banking partners there and and some of these relationships are very robust over the years we've you know we've had the we've been we've got the same banks right servicing us and so that creates again creates the stability and that creates stickiness with clients clients love to not have to change i don't know the funding method every three months right and they just knew they have a when they

use kraken they can send the money to that bank a specific bank account they know exactly what they're in for so there's there's a certain transparency there and clarity and i think clients appreciate that and then you know security is also of course top of mind i'm i live in germany germans are super concerned about privacy security so i think they also associate kraken kraken with those those those values and so yeah i think that's why we've had such a strong put out in in europe um essentially because we were there early and we got a lot of these these really all the adopters these clients right these these these more more sophisticated traders that have been in the space for a long time and then there's i guess there's been a lot of positive just like you know we had a good reputation and

there's been a lot of just sharing of that information across the community right without us having to do any kind of advertising any of that in the in the region yeah okay like that snowball snowball effect i definitely do you see what you mean as you mentioned that you you see yourselves as a global company i mean how did this code 19 pandemic affect you yeah i i guess i addressed one aspect of that already which is the remote working culture i mean i'm actually very like glad or almost at the time i was relieved that we had already kind of had the setup because i know that it was a was a really severe disruption for a lot of other businesses and like obviously i have friends that are not a crypto and so i know what it meant to them and

unfortunately a lot of people also lost their jobs right i mean in the service industry and that was sad to see right apart from all the other human tragedies this crisis has caused but but one thing where i think we we could kind of offer at least some opportunities to some of some of these workers who lost their job is that we created you know we actually at one point actively recruited people in our social circles so krakenites they were encouraged to recruit people in their social circle or network that had lost their their jobs recently due to covid and so for some of these uh folks who are able to offer them positions uh in in in a support role right for at least them certain amount

of time due to all the demand we we started to see right starting starting in 2020. so so that's something where i think we kind of added a lot of value for for people who had unfortunately had negative experience due to coped wow that was just wonderful to hear that we had this help out initiative and i'm sure they were very very grateful that and it shows a lot about your culture so well it's wonderful wonderful to hear and and maybe as we kind of slowly approach uh the the end of this episode and unfortunately 2021 is is here there there's a lot that is set to happen uh this year as you've mentioned throughout uh the episode i mean what's your vision for the future of this whole uh industry yeah great

question thanks so i think there's a lot of super interesting topics where you know we'll see continued you know innovation new new new ideas new products new opportunities come up i think like you know staking is obviously a super exciting topic for you know already has been in in 2020 and you know to certain extent 2019 um it will continue to be up to to become very interesting for also for consumers like there's a lot of people out there who don't you know don't have a lot of investment opportunities that you know come with with yield any kind of yield right so i think staking the idea of just

locking locking your funds essentially and getting some some kind of stable income you know off of that is is super enticing to a lot of these because a lot of these retail clients right and and i think like improving for for the entire industry improving the access to those products is going to be must be a priority right in 2021 and certainly it is something for crack we already leader in in in staking f2 staking as 2.0 f 2.0 sticking with the we already like the leader and then we're in the top five for the other asset you know polka dot and and tazon so yeah i think this is a super interesting area for a lot of exchanges

but specifically also for crack great great to hear so thank you so much johannes for joining us i mean do you have any final words for our listeners yeah i mean i think there's a there's a few people here in who may may not be in the blockchain industry just yet haven't quit their legacy finance job i can just encourage you to come join us and come join the exciting world of crypto the as we're building a new uh financial services infrastructure so it's uh it's gonna be a it is has been an exciting journey and will continue to be exciting so yeah i can just encourage everyone to educate themselves and learn about crypto and join the industry perfect thank you it's wonderful and

if you enjoyed this conversation feel free to check out more on our website cryptovalley.swiss where we host plenty of events educational content and even provide information on how you can join our growing community so thanks again johannes for joining us thanks for watching my pleasure stay tuned stay safe and until next time from the crypto valley in switzerland bye bye