The crypto media is abuzz with the news that financial services startup Circle has agreed to purchase the altcoin-focused cryptocurrency exchange Poloniex for $400 mln. Don’t think for a moment that Circle’s aspirations stop with this one acquisition. CEO Jeremy Allaire has already said:
Maybe the first $1 trillion company in the world will be created in this space.
It’s a good bet that Allaire intends to make sure his company is the one that reaches that milestone first.
The goal of creating a trillion dollar company isn’t just idle talk, if the crypto ecosystem grows as rapidly as many think it will. Experts tend to agree that the digital currency space is ripe for consolidation, which could leave just a few companies at the top of a very large value pyramid. This is hardly unprecedented; following multiple rounds of mergers and acquisitions, the entire multi-trillion dollar US stock market is now essentially split between just two exchange - the New York Stock Exchange and NASDAQ.
Circle can be best described as a financial services firm – a broad description which covers the many facets of its business operations. Circle Trade is the company’s over-the-counter (OTC) crypto trading desk, where large buy and sell orders (in excess of $250,000) take place between interested parties. Circle Trade handles $2 bln in transactions per month, collecting some hefty fees in the process.
The company also runs the Circle Pay app, which allows for the transfer of funds simply by sending a text message. Circle will soon launch another app, Circle Invest, which aims to be for digital currencies what the popular Robinhood app is for the stock market. Circle Invest will allow individuals to make one-time or recurring digital currency investments with extreme ease.
Circle’s acquisition of Poloniex gives the company a foothold in the cryptocurrency exchange market. Poloniex has long been a popular exchange for altcoins and ICO-launched digital tokens, focusing on a token-for-token business model and thus being able to eschew much of the regulation inherent in operating a crypto-to-fiat business.
By purchasing Poloniex, Circle has added another important vertical to its financial services business. Circle can easily leverage both Poloniex and Circle Trade, for instance, to power both Circle Invest and Circle Pay. This will keep their customers, and fees, in-house and ensure that Circle doesn’t have to depend on external partners.