Peer-to-peer payments startup Circle announced yesterday that it has acquired Boston-based cryptocurrency exchange Poloniex. According to multiple reports, Circle is paying around $400 million for the exchange, which has been in operation since 2014. The sale also brings Goldman Sachs one step closer to becoming a major player in the cryptocurrency world, as the financial behemoth is one of Circle’s biggest stakeholders.
Founded in 2013, Circle was originally envisioned as a cryptocurrency-based peer-to-peer payment system, complete with bitcoin-denominated wallets. Although Circle was the first company to receive “BitLicense” approval by the New York State Department of Financial Services, the company soon began to distance itself from cryptocurrency, officially ending bitcoin wallet support in late 2016. From the outside, Circle appeared to have completely abandoned its cryptocurrency roots, focusing instead on besting mobile payments rivals like Venmo through it’s Circle Pay app. With the purchase of Poloniex, however, it appears that Circle has had very different plans for some time.
It’s not hard to see why buying Poloniex makes sense for Circle. Although much smaller than other major U.S.-based exchanges like Coinbase or Kraken, Poloniex has managed to hold its own in the market thanks to aggressive support for Initial Coin Offerings (ICOs). According to a leaked slide from an SEC-focused Circle presentation found by New York Times writer Nathaniel Popper, Circle’s plan appears to be centered on becoming “The US’s First Regulated Crypto Exchange,” with a heavy focus on security-like ICO tokens. The leaked slide suggests that Circle already has a strong relationship with the SEC, and that the Commission is highly supportive of the plan.
The Poloniex purchase may be easier to understand as an extension of Circle Trade, its high-finance crypto-trading branch. According to a report published yesterday by Fortune, Circle Trade handles more than $2 billion a month in major cryptocurrency trades (minimum $250,000 per deal), making it a central component of the company’s success. Seen from this perspective, the Poloniex acquisition may be the first steps in bringing Circle Trade’s success down to the consumer level. This would place it direct competition with the biggest companies in the space: Kraken, Bittrex, Coinbase, and Gemini.
One additional wrinkle in this deal is the Circle’s open-source Centre protocol, which would allow transactions between digital payment systems like Alipay and PayPal. It’s not difficult to imagine how Centre could be used in an ICO context, allowing for even obscure ICO tokens to be instantly purchased or sold without relying on traditional payment systems or legally questionable trading platforms operating outside of the U.S. If this turns out of to be true, Poloniex could soon find itself at the center of an entirely new — and legally recognized — hybrid of tokenized stock exchange, cryptocurrency brokerage, and online bank. Given the global nature of cryptocurrency trade, it could even result in Poloniex becoming a de facto foreign exchange market.
In the short term, Poloniex users can expect a major upgrade to the site and its services. A post on the exchange’s blog announcing the acquisition notes that the company will be “focused on strengthening user experience, platform performance, and security” through behind-the-scenes updates. Not surprisingly, the exchange expects “further scale our platform, grow our global reach, and accelerate the token ecosystem” in the near future.