Some Crypto42-Thoughts on the “Circle-Poloniex” Transaction
Wall Street embraces Cryptoassets
On February 26, 2018, Circle announced in a blog post that it acquired the cryptocurrency exchange Poloniex “to accelerate the emerging token economy”.
The Goldman Sachs-Startup Circle is the operator of Circle Trade, one of the world’s biggest trading desks for cryptocurrencies acting as an intermediary between whales and shoppers. The Circle Trade guys handle more than $2 billion a month in cryptocurrency transactions with deal sizes of up to several hundred millions (Source: Fortune). The fintech startup Circle managed to attract big investors — including Goldman Sachs, Chinese Internet giant Baidu, and venture capitalist Jim Breyer, one of the earliest backers of Facebook. To make a long story short — Circle is a Big Fish in the cryptocurrency ocean supported and promoted by Wall Street and the financial establishment. Consequently, Circle is in an excellent position to develop a regulated and sustainable cryptoasset business in close discussions with regulators such as SEC or FINRA.
The Poloniex Transaction
Poloniex, a Boston-based cryptocurrency-startup, trades only tokens and coins and hence needs partners for fiat money transactions. One of the partners for fiat is the Circle’s trading desk. The two companies developed a close relationship that finally resulted in Circle’s Poloniex acquisition.
Like most other cryptocurrency exchanges Poloniex has struggled to service an influx of customers. Poloniex users complained about missing deposits, trouble withdrawing funds, locked accounts, and months-long silences on support issues. In its blog post, Circle promised, “to address customer support and scale risk, compliance, and technical operations” to advance Poloniex’s existing platform.
But there is more to expect from this transaction than just to improve customer experience. Circle’s move has the potential to change the game and the boost the cryptoasset traction.
Consequences for the Cryptoasset Market
Our cryptocurrency and cryptoasset community has experienced a lot of discussions around regulation and regulatory frameworks for issuance and trading of cryptoassets such as tokens or coins. Some doomesayer continuosly predict the end of crytocurrencies and love to regard bitcoins, ether and the other coins and tokens as bubble and/or scam. Admitted, unfortunately, we saw a lot of ICO scams and fraudulent cryptocurrency investment schemes over the last months but this does not mean that the blockchain technology or the cryptocurrency (cryptoasset) concept is a scam itself. On the contrary.
Circle’s co-founder Jeremy Allaire is regarded as a long-term strategic thinker with a design for a new operating system for the financial industry:
Our vision was always how to fuse the existing financial system with cryptocurrency as a hybrid, digital model. (Jeremy Allaire)
The financial establishment obviously endorses Jeremy’s design and provide its support in terms of finance, connections and networks. Backed by Wall Street giants like Goldman it’s fair to assume that Circle may succeed with its vision which comprises the establishment of a regulated cryptoasset trading and brokerage environment as we can read from a Circle presentation on the Poloniex transaction (see picture above, credits to @Philip Nunn for posting it on LinkedIn).
I am convinced that Circle’s Poloniex transaction not only improves Poloniex existing business but also advances the cryptoasset industry by evolving the cryptoasset business into a holistic asset trading framework:
In the coming years, we expect to grow the Poloniex platform beyond its current incarnation as an exchange for only crypto assets. We envision a robust multi-sided distributed marketplace that can host tokens which represent everything of value (Circle blog post).
The Poloniex transaction is a major milestone on our way toward a regulated token economy. It contributes to establish a save grounding on which cryptoassets can be issued and traded in a compliant way.
Let’s discuss this and other future oriented cryptoasset scenarios at the Crypto42 Summit in Vienna …
