FT Cryptofinance: Kraken’s Jesse Powell joins the list of crypto resignations

Hello and welcome to the FT’s Cryptofinance newsletter. This week we take a look at Jesse Powell’s decision to step down as Kraken CEO.

The crypto industry is not as young as its supporters would have you believe. It has been busy growing up with a whole host of C-suite names that have become synonymous with the crypto brand itself.

But the market’s near-unprecedented crash earlier this year not only cost thousands of people their jobs (here’s to you, Coinbase, Gemini, Crypto.com, and more), the effects are now creeping up on some of crypto’s most vocal and controversial personalities.

This week Jesse Powell, the controversial industry pioneer of 40 years, said he would step down as CEO of crypto exchange Kraken. He joins MicroStrategy’s Michael Saylor, Michael Moro of Genesis and Alameda’s Sam Trabucco in leaving senior positions during the current downturn.

These firings come on the heels of some far more serious industry disasters, catching Alex Mashinsky, CEO of bankrupt crypto-lending platform Celsius, and Su Zhu and Kyle Davies, the masterminds behind Three Arrows Capital, the infamous crypto hedge fund that has also gone bankrupt.

Most of them were active social media influencers, using platforms like Twitter to preach the virtues of digital tokens. In their own way, they contributed to the industry’s culture as prices rose.

Powell was a prime example of how this social media accessibility and confidence in crypto’s millennial vision of society transformed could combine into a heady brew.

He tapped into crypto’s libertarian ethos as an outspoken critic of “woke” politics, overseeing a Kraken “culture” that pledged cult-like allegiance to “The mission“.

According to a tweet in June, some “Krakenites” were unhappy with certain aspects of life at the exchange, including what Powell described as “first-world problems” such as . . . *checks notes* . . . “whether someone can identify as a different race and be allowed to use the N-word”.

As the thread progressed, he defended his freedom of speech. Powell also said he “entertained the debate a little because [he’s] open-minded”. He later acknowledged that “people are triggered by everything and cannot follow basic rules for honest debate. Back to dictatorship”. OK.

Why do senior managers look to the door? It is often said that major events in life give pause for reflection on what matters. Powell wanted to step back from running the day-to-day business, Trabucco recently bought one boatand Saylor is keen to focus on buying bitcoin.

But a successful religion needs its prophets and its merits. Their departures coincide with more difficult issues.

MicroStrategy — the once-obscure software company that’s now a de facto bitcoin ETF — stared at billions in losses this summer after spending the past couple of years betting big on bitcoin. Saylor also has a tax problem to solve.

Moro left Genesis as the cryptobroker calculated the cost of lending $2.4 billion to Three Arrows Capital, which collapsed after its bold bets on bitcoin turned south in the wake of the broader crypto market collapse earlier this year.

The New York Times reported that Kraken is under federal investigation for potential violations of US sanctions against Iran. Powell himself had lashed out at the Treasury’s recent designation of crypto-mingling service Tornado Cash, which allegedly facilitated billions worth of laundered crypto, calling it “constitutional”.

In traditional finance, the gap left by a charismatic CEO is normally filled by a more sober person, less given to colorful comments that get them in trouble with regulators or employees.

But crypto may be different. Powell plans to focus on advocating for big business. Saylor also wants to be an evangelist, and I wonder what he thinks he’s been doing for the past two years.

The industry is currently going through one of its periodic downturns. Many of the industry’s leading lights, such as FTX’s Sam Bankman-Fried, Coinbase’s Brian Armstrong and Galaxy Digital’s Michael Novogratz, still preach on social media. We wait to see who else emerges to lead it out of the wilderness.

Will the streak of crypto executive resignations continue? Watch this space and always email me at [email protected].

Weekly highlights

• Another week, another crypto hack. This time the number of market maker Wintermute was called. CEO Evgeny Gaevoy so The platform’s DeFi operations had been compromised to the tune of $160 million, but added that Wintermute was “solvent” with “over double that amount in equity remaining”. Going forward, the company plans to keep the DeFi faith and “continue to move forward through this bear market”.

• A lawsuit worth watching: The Securities and Exchange Commission has filed a lawsuit in Texas against Ian Balina, alleging that he failed to disclose compensation he received from an unregistered initial coin offering in 2018. In a lawsuit this week, the regulator asserted jurisdiction over ether transactions that were validated by a network of nodes “clustered more densely in the United States than in any other country”. After the merger, some commentators said they were concerned about ethereum’s “censorship resistance” credentials. You can read all about it in my latest version of the network’s proof-of-stake shift and what it means for the future of crypto.

• Binance announced a new Global Advisory Board chaired by former US Senator and Ambassador to China Max Baucus and including former ISOCO Secretary General David Wright. The board will advise on “complex regulatory, political and social issues facing the entire crypto industry”. Chief executive Changpeng Zhao described the board as a “testament to our focus on compliance, transparency and ensuring a cooperative relationship with the world’s regulators”, but the exchange has faced a number of arguments with regulators around the world, including the Netherlands, the UK and Singapore.

• The Crypto Council for Innovation, a crypto advocacy group, this week launched the Digital Future Award to recognize US congressmen who are “leading the way on a complex and nuanced set of issues” related to digital assets. Among the award’s recipients are Senators Ted Cruz and Cynthia Lummis, and Congresswoman Maxine Waters.

Soundbite of the week: Consumer protection at its best

A notable quote is usually found in this section of my newsletter, but this week is different. Below is a screenshot documenting Binance’s efforts to protect its consumers from Terra 2.0.

When I read the warning, my mind went to this classic Simpsons scene about Homer eating fugu, the fish that can make a good meal but can also kill him. “Yeah, yeah, it’s poisonous, potentially deadly, but if cut right, it can be quite tasty.”

Binance said it adopts strict security protocols and maintains high standards for the tokens it lists, and urged users to understand any risks and act with caution.

Data mining

Tether, the world’s largest stablecoin provider, came under renewed pressure this week to open its doors to regulators. A New York court ordered Tether – and its sister company Bitfinex – to provide documents related to the support of the tether stablecoin.

However, the good news for Tether is that bitcoin-to-tether (USDT) trading has picked up in recent months following this year’s crypto market crash.

According to data compiled by data analysis platform CryptoCompare, bitcoin-USDT trading volume in bitcoin has roughly doubled since May, when the stablecoin’s peg to the dollar was briefly lost amid mounting selling pressure in the wake of the crash in crypto prices.