In a statement released on February 26th, 2018, the peer-to-peer payments company Circle revealed their acquisition of long-standing cryptocurrency exchange, Poloniex.

With the accelerating growth of the crypto-asset class and as the underlying technology becomes more prominent within the public consciousness, mergers and acquisitions of this sort will become more common. According to coverage by Fortune, the deal is reportedly to have been $400 million.

Currently, Circle has three products: Circle Pay, which allows people to send money to each other as simply as sending a text message; Circle Trade, a trading desk that provides institutional investors liquidity for their crypto holdings; and Circle Invest, an app currently in production that will allow more individuals to invest in the growing crypto asset class without the sharp learning curve.

With Circle Poloniex, the company will have one of the largest token exchanges to expand upon its resources and to further extend its reach into the global financial markets.

“We envision a robust multi-sided distributed marketplace that can host tokens which represent everything of value: physical goods, fundraising and equity, real estate, creative productions such as works of art, music and literature, service leases and time-based rentals, credit, futures, and more.”

Circle is clearly predicting massive growth of a token economy as more and more traditional and novel assets become transferable in the distributed accounting system of blockchain.

Having long been under barrage from the community over customer support tickets in the void, locked accounts, missing deposits, and other troubles, Poloniex will now benefit from Circle’s emphasis on customer support and means of appropriately scaling operations.

The fact that Goldman-Sachs is an investor in Circle has been a focal point in the community’s response to the acquisition, as this marks the closest Wall Street has come to the industry. While only a vicarious proximity, it will be the performance of companies like Circle that will prompt Wall Street to get involved.

One question that has been on many minds since the announcement is where the acquisition places Circle in a regulatory context. Being the first startup to obtain the controversial New York Bitlicense as well as a similar license from the United Kingdom’s Financial Conduct, the company has gotten a reputation for its conservative and risk-averse approach to its operations, and taking the reigns of a cryptocurrency exchange certainly involves absorbing a lot of risk.

Below is a Tweeted image from journalist Nathaniel Popper of a slide from a confidential presentation in which Circle outlines the state of play of the acquisition:

Circle will operate Poloniex as a standalone venture under a new holding company subsidiary. The company will use its expertise and extensive capabilities to expand the exchange’s operations, bringing on board 80-100 new employees.

The slide also reveals that Circle has actually been in direct correspondence with the SEC regarding the regulatory implications of the move. The new Circle Poloniex will be registered with the SEC and FINRA as a Broker/Dealer and in doing so be licensed as an electronic trading marketplace (ATS). The SEC reportedly approved of Circle’s approach to the acquisition and “indicated that they would not pursue any enforcement action for prior activity.”

Circle is angling to become the US’s first regulated crypto exchange that will welcome many types of crypto-assets including “tokens that would be deemed securities.”

Ultimately, Circle’s strategy is placing it at the intersection of the legacy and emerging financial markets with an obsessive focus on prime customer experience.

Currently, the most popular exchange for cryptocurrencies is Coinbase/GDAX, which claimed around one billion dollars in revenue in 2017 while also officially achieving unicorn status in an industry first. This year will see these ventures–functioning as crucial avenues of investment, commerce, and interest in the industry–optimize their market strategy in an attempt to maintain their competitive edge in a rapidly accelerating industry.


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