Crypto exchange Kraken has announced that it will disable margin trading for some U.S. residents from June 23, "in light of regulatory guidance."
Margin trading involves an investor borrowing funds from a third party—in this case, the exchange—to make trades for more than they actually own. Kraken allows traders to trade margin up to five times the initial value.
According to a blog post by Kraken, U.S. residents will need to be verified at the Intermediate level on the exchange and self-certify as an Eligible Contract Participant (ECP) under U.S. law to qualify for margin trading.
An ECP is an individual or group that's permitted to engage in financial transactions that aren't open to retail clients. To qualify, individuals are required to have assets of $10 million invested on a discretionary basis, while institutional clients need to have $10 million in total gross assets.
From June 23, Kraken users who don't meet those requirements will only be able to reduce, close out, or settle existing margin positions and won't be able to open new ones.
Kraken's decision to restrict margin trading follows similar moves by other exchanges. In November 2020, Coinbase ended margin trading services, citing guidance from the Commodity Futures Trading Commission. At the time, Coinbase's chief legal officer Paul Grewal wrote that, "We believe clear, common sense regulations for margin lending products are needed to protect and provide peace of mind to U.S. customers. We look forward to working closely with regulators to achieve this goal."
Kraken has good reason to play nice with regulators; the company has been granted a license by the state of Wyoming to create a crypto bank in the state, enabling it to hold custody over digital assets, operate payment systems, and enable customers to pay bills and receive salaries in cryptocurrency.
Earlier this year, Kraken sought a funding round that would value the business at $10 billion.