Global cryptocurrency exchange Kraken announced today that it has acquired the U.S.-based futures and options market Small Exchange for $100 million from online trading company the IG Group. In a blog post and press release, the company said the purchase expands Kraken’s international trading infrastructure and “paves the way for a fully U.S.-native derivatives venue.”
While the announcement doesn’t specifically mention it, the acquisition could also pave the way for Kraken to begin offering event derivatives — AKA prediction markets — directly on its platform. Small Exchange is approved as a Designated Contract Market (DCM) by the Commodity Futures Trading Commission (CFTC).
Purchasing a company that already has DCM status is one way to achieve a legally-compliant entry into the U.S. prediction market space. Earlier this year, international prediction market platform Polymarket acquired the CFTC-approved DCM QCX for $112 million. The acquisition allows Polymarket to re-enter the U.S. market after previously being forced to leave by the CFTC for operating without its approval.
Owning a DCM “authorizes us … to design and create markets for exchange-listed derivatives in the U.S.,” Kraken notes.
“Kraken’s acquisition of a CFTC regulated Designated Contract Market creates the foundation for a new generation of United States derivatives markets,” Kraken co-CEO Arjun Sethi said in the post. “It is designed for scale, transparency and efficiency.”
Kraken previously announced intentions to expand into prediction markets
Kraken has yet to announce any specific plans for prediction market offerings. A spokesperson for the company wouldn’t elaborate on what could be in store, but told Prediction News, “We can broadly confirm our ongoing interest in prediction markets.”
The rapidly expanding platform previously revealed that event contracts were in its sights. In May, Kraken announced it had acquired U.S. retail futures broker NinjaTrader, which the company said was an important step towards developing an “institutional-grade trading platform where any asset can be traded, anytime.”
In the press release announcing the NinjaTrader deal, Kraken said prediction markets were a part of its ongoing expansion plans.
“Kraken plans to introduce additional asset classes, including stocks, prediction markets, and options, to both platforms in the future,” the company said in the release, referring to both the standalone NinjaTrader platform and Kraken itself.
Despite its DCM status (which it gained in 2020), Small Exchange hasn’t previously offered prediction markets. As a CFTC/National Futures Association-registered Futures Commission Merchant, NinjaTrader does offer select financial event contracts from CME Group, the global financial services company that operates several DCMs.
In 2021, Kraken was fined $1.25 million by the CFTC for “offering margined retail commodity transactions in digital assets, including Bitcoin, and failing to register as a futures commission merchant.”
Prediction market entry makes sense for Kraken
This is Kraken’s fourth acquisition this year, according to Banking Dive, which called the company’s NinjaTrader purchase “one of the largest deals to date between traditional finance and the crypto sector.” With Kraken’s major expansion, it would make sense for the company to enter the prediction market space, which is experiencing skyrocketing awareness and trading volume in the U.S. at the moment.
It’s also a good time to be at the intersection of crypto and prediction markets in the U.S., with the Trump administration seen as being much friendlier and more permissive to both industries from a regulatory standpoint.
Polymarket (which could re-enter the U.S. at any moment) is built on the Polygon blockchain and has been a favored platform for crypto users worldwide. Crypto.com is also a CFTC-approved DCM that offers event contract trading on its platform.
Kalshi, the prediction market industry’s market share leader, has taken numerous steps lately to ingratiate itself with the crypto community, as well. The company’s head of crypto, John Wang, recently said that Kalshi will be on “every large crypto application and exchange” within the next year.
