Should You Buy Bitcoin Through Kraken?

If Bitcoin were a person, it would probably be some kind of social media star who became famous out of nowhere, got pushed out of the spotlight by scandal, and then found its way back into public affection. Next thing you know, it will be eating maggots for breakfast on I'm a Celebrity…Get Me Out of Here.

After its dramatic fall from grace, Bitcoin managed to erase most of its losses this year. Indeed, the granddaddy of crypto even reached a new high in March. Even so, investors are understandably more cautious this time, particularly about which cryptocurrency exchange to choose.

If you're considering buying Bitcoin through Kraken, here's what you need to know.

Buying Bitcoin through Kraken

Kraken is a popular cryptocurrency platform that checks a lot of boxes in terms of security, functionality, and available cryptocurrencies. It also has a highly rated mobile app. It is open to residents of all U.S. states apart from Washington, New York, and Maine.

Lots of top crypto exchanges offer a beginner platform and a pro platform. The basic platforms are usually super easy to use, but charge higher fees. Pro platforms are aimed at more advanced traders and the fees are lower.

Kraken is no different. If you are new to investing, its Instant Buy feature lets you buy Bitcoin, well, instantly. But pay attention to the high fee and spread that displays when you buy or sell. These fees are variable, and it does not publish them on its website. But they can be pretty steep.

Kraken's Pro platform charges a maker/taker fee of between 0% and 0.40% depending on how active a trader you are. This is a competitive rate and one that won't put a significant dent in your investment profits.

Is Kraken safe?

Crypto is a relatively new industry and there is not a lot in the way of consumer protection. That makes it all the more important to know that the platform you use is safe. Safe, meaning it will keep funds secure and not collapse and take your money with it. Kraken ranks highly in several lists of most secure crypto exchanges.

Proof of reserves

Importantly, Kraken works with external auditors to demonstrate that the assets you deposit on the platform are fully backed. We now know that FTX was siphoning off customer funds and using them for all kinds of other purposes. This makes Kraken's high level of transparency and accountability extremely reassuring.

Top level encryption

Kraken has top level encryption and says it meets international security standards. It keeps crypto offline in cold storage which makes it harder to hack. At a user level, the platform has two-factor authentication and requires additional confirmation if you want to withdraw to a new address.

However, a bizarre hack-but-not-hack hit the headlines recently. A so-called "white hacker," someone who uses their skills to identify vulnerabilities, was able to exploit a security flaw and take $3 million from Kraken reserves. According to The Hacker News, Kraken is treating the event as a criminal case. It isn't a hack per se. And customers did not lose money. But it is a reminder that hackers can target even the most secure exchanges.

Personally, I would like to see an extra level of protection in the form of third-party insurance. Kraken is transparent in this regard.

It says it is not a bank or depository institution and so does not provide outside insurance. It encourages users to store their crypto in external crypto wallets rather than on the exchange. Kraken launched its own crypto wallet in April.

What about Kraken and the SEC?

The SEC has taken a hard stance against crypto in recent years. It argues that several cryptocurrencies are not commodities, but instead unregistered securities that should come under its jurisdiction. As a result, it is pursuing cases against a number of top cryptocurrency exchanges, including Kraken.

Kraken settled one case over crypto staking with the SEC in May 2023. Then in November, the SEC accused Kraken of operating an unregistered securities exchange. Kraken is fighting the charges.

Should you buy Bitcoin at all?

As with any investment, it is important to research Bitcoin carefully before you jump in and buy. Think about how it might perform long term and make sure you understand the arguments about its utility. Some people believe that Bitcoin has no real-world use at all. Others think it will be the digital currency of the future.

Cryptocurrency can be an extremely volatile and risky investment. There is a lot we don't know, including how the SEC's various cases will play out, and what impact stricter regulation might have on retail investors. The technology itself still has hurdles to overcome as well.

On the other hand, some long-term investors have already made significant gains from their Bitcoin purchases. The attraction of riskier assets is that they may outperform. They may also collapse completely. Make sure Bitcoin only makes up a small portion of your portfolio and only invest money you can afford to lose.

Bottom line

If you decide to buy, cryptocurrency exchanges are a great way to do it. But bear in mind that exchanges are not the only way to buy Bitcoin. You may be able to buy Bitcoin or a Bitcoin ETF directly from your existing brokerage account. There are pros and cons to both approaches, so research which will suit you best.

All in all, Kraken is an excellent platform with a good reputation. It isn't alone in facing issues with the SEC, it's easy to use, and it is transparent about how it stores and protects your funds.