Circle acquisition of Poloniex is just the beginning of likely consolidation in crypto
February 27 2018 - 6:27AM
ADVFN Crypto NewsWire
News Monday that digital payments company Circle has bought
cryptocurrency exchange Poloniex is stirring speculation of more
acquisitions in the young digital currency world.
"I think this is a really good sign for the industry. It shows
that a lot of companies are going to start consolidating and that
will bring [out] the best talent," said Erik Voorhees, an early
investor in bitcoin who is now CEO of digital asset exchange
ShapeShift. "I think you're going to see a lot of that in 2018.
These companies have so much capital at this point."
Venture capitalists and other early stage investors put $1.06
billion into the crypto-economy in 2017, according to Lex Sokolin,
global director of fintech strategy at financial research firm
Autonomous Next. For the year so far, such investments stand at
$323 million.
Investment in crypto-economy ($ millions)
Source: Autonomous Next
The entire cryptocurrency market capitalization has also grown
from around $20 billion at the start of last year to around $500
billion in the last few weeks, according to CoinMarketCap.com.
Bitcoin, the largest cryptocurrency by market
cap, is up several hundred percent over the last 12 months and was
trading near $10,000 Monday.
"These markets are still in their infancy but they hold enormous
promise," Circle co-founder and CEO Jeremy Allaire told CNBC in a
phone interview Monday. "There's going to be a huge amount of value
creation."
"Maybe the first $1 trillion company in the world will be
created in this space," he said.
Goldman Sachs and China-focused investment firm IDG
Capital Partners are investors in Circle, which has raised a total
of $136 million and has a valuation of at least $420 million,
according to PitchBook.
Monday's deal with Circle was reportedly sealed at $400 million,
according to Fortune, citing a source. Circle had no comment and a
representative for the exchange did not return a CNBC.com request
for comment.
That valuation tops that of popular names in blockchain
development, such as R3 and Chain, Autonomous Next's Sokolin
pointed out. But it still falls below that of Coinbase, estimated
to be worth at least $1.6 billion.
A likely next step for some of these growing cryptocurrency
businesses is going public on one of those exchanges. Asiff Hirji,
Coinbase's president and COO, said on CNBC's "Fast Money" in December that the "most obvious path"
for the company is to go public at some point.
"Personally I'm excited to see the first bitcoin company IPO. I
think it should be Coinbase," Voorhees said. "It will be a huge
milestone for an industry that no one took seriously five years
ago."
As for Circle, Allaire said, "We have no intention of being a
public company in the near future at all."
CoinMarketCap lists 193 cryptocurrency exchanges, and some
estimates put the figure even higher. Only the top four had a
24-hour trading volume of more than $1 billion.
"I do think the exchanges over time will need to consolidate,"
said Michael Graham, an analyst at Canaccord Genuity who has
covered internet stocks since the late 1990s. "If a company is
going to be like a gorilla in the cryptosphere they're going to
need to make large, aggressive bets now."
In the U.S. stock market, where daily trading volume is in the
trillions of dollars, just two main players have emerged from years
of consolidation: the New York Stock Exchange and Nasdaq.
Poloniex is the 18th-largest cryptocurrency exchange by trading
volume, according to CoinMarketCap.com. The company is known for
its supporting a variety of digital currencies, but little is known
about its management.
Circle may have had reason to be confident in its purchase,
however. Nathaniel Popper, author of "Digital Gold" and a New York
Times reporter, tweeted a section from a confidential Circle
presentation that said the Securities and Exchange Commission
indicated it "would not pursue any enforcement action for prior
activity" regarding the transaction.
The document also said that Circle will begin registering the
new entity with authorities with the goal of becoming the "US's
first regulated crypto exchange."
Circle said it would not comment on unverified documents. The
SEC did not immediately respond to a CNBC request for comment.
Ryan Selkis, founder of open-source cryptoassets database
Messari Crypto, said he thinks the Circle-Poloniex acquisition is
the best news of the year so far.
"This is tremendous for the broader industry's health. Circle is
a terrific company that sets high standards around consumer
protection and self-regulation, and the Poloniex acquisition will
make a wide range of digital assets more safely accessible to the
broader public."
Evelyn Cheng | @chengevelyn
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