Poloniex, the cryptocurrency exchange, has been bought by Circle, the highly regarded payments and crypto trading company, in a deal rumored to be $400m, according to a tweet by Fortune’s Robert Hackett.
It’s interesting for several reasons:
1. It could be the start of a trend towards large acquisitions in the space – both crypto and blockchain
2. There are specific synergies between these two companies
3. It highlights Circle’s ambition – the Goldman Sachs backed company perhaps plans to be the Goldman Sachs of the crypto sector
Circle has two main products. Circle Pay is a consumer-targeted app for transferring money, similar to Paypal’s Venmo. It originally included Bitcoin but dropped that in 2016. So instead cryptocurrency is used behind the scenes.
The second product is Circle Trade which is a high volume, large transaction, crypto trading desk for ‘whales’, hedge funds and the like. “Circle Trade is one of the largest liquidity providers of digital assets and cryptocurrency in the world. We directly trade over $2B per month in crypto. We actively make markets on nearly all major exchanges globally.” So it provides access to that elusive thing: conventional banking for crypto.
In October Circle launched Centre, an open source project and protocol to make different payment apps interoperate. In their words “why can’t we use Circle Pay to send money to someone in China who uses Wechat Pay, who can then pay someone who uses Paytm in India, to pay someone who uses any other social payment or messaging app or bank or wallet — instantly and safely anywhere in the world, with no cost?”
Also in October, they bought startup Trigger Finance to start an investment platform. And this is where Poloniex fits nicely.
Both companies are Boston based.
On the face of it, Coinbase and Poloniex appear very similar. But they have an important difference. Poloniex is crypto only, so you can’t convert crypto to real money or vice versa. You can only convert between different cryptocurrencies, which has to be a big break on growth.
According to Fortune, this is how the two companies struck up a relationship because Circle Trade enabled Poloniex to convert crypto income into US Dollars. So the mix of Circle’s strong banking links with Poloniex’s retail crypto trading plus the Trigger Finance acquisition is a good fit.
Circle’s CEO Jeremy Allaire is highly regarded in Silicon Valley and during the dotcom boom Allaire Corporation and Coldfusion were almost as well known as Ethereum is today. After selling the company to Macromedia, he later founded Brightcove, the video company which IPO’d in 2012 and then co-founded Circle in 2013. Now he’s building the bank of the future.
It’s conceivable Circle could target Coindesk’s GDAX top US exchange position, but to reach number one globally could be a challenge. More likely they want to become dominant in the more regulated jurisdictions.
The crypto exchange space is very dynamic. Hong Kong-based and Sequoia-backed, Binance is currently ranked number one in volumes by Coinmarketcap, reaching the top spot within just five months of launch. They did so by focusing on ICOs, so they have a much lower proportion of Bitcoin trade.
Circle has the backing to fund its vision and the heavyweight management to make it happen. Watching the ride will be fun.