A cryptocurrency startup which has been backed by the investment bank Goldman Sachs has bought a digital token exchange known as Poloniex. The startup has stated that it aims to cement its position as one of the leading players in the booming market. However, despite the acquisition, none of the Boston-based companies have disclosed the value of the exclusive deal that gives Circle control of a market it said sometimes has daily volumes of approximately $2 billion, with an estimated 70 different cryptocurrencies and tokens being traded.
Fortune magazine has commented on the deal, and has since stated that the deal was worth around $400 million, as indicated by a person who is familiar with the matter. The Circle co-founder and CEO commented on the recent deal and said “We’ve been really impressed with what they have been able to pull off”.
“They defined what originally people thought of as ‘altcoins’” he told Reuters. The term altcoin describes the newer cryptocurrencies that have yet to gain momentum than the more established bitcoin and ether.
Circle operates an app-based peer-to-peer payment network using blockchain technology, which first came into the public eye as the system underpinning cryptocurrency bitcoin. It’s also one of the leading players in OTC (over the counter) market for bitcoin trading, and will soon be launching an app for buying cryptocurrencies, that is solely retail-focused.
Circle is currently one of the best-funded blockchain startups and its investor include Goldman Sachs and Baidu Inc.
The founders of Circle have said that they had talked about the acquisition with all of their investors, as well as the necessary regulators and that the deal was closed on Friday.
The value of cryptocurrencies, as well as the number of them in total have exploded since the start 2017, when they were originally worth around $17 billion, according to the popular website coinmarketcap.com. Now with their total value surpassing $800 billion in January before descending to $450 billion. There are currently over 1500 cryptocurrencies and tokens, coinmarketcap.com said.
Regulatory Issues
Poloniex is a well-known exchange amongst the cryptocurrency community because it offers trading on a endless range of digital coins, several of which have been issued through online fundraisers known as an ICO (Initial Coin Offering).
Regulators spanning the world have been increasing the scrutiny of the practice of conducting ICOs and cryptocurrency exchanges.
The SEC (Securities and Exchange Commission warned that some of these coins and tokens that are issued during ICOs could be classed securities, which would mean that if you trade them, you would have to comply with federal laws concerning securities.
“We intend to continue playing a leadership role when it comes to national and global frameworks for this space”. Which is what Circle co-founder Sean Neville told Reuters.
“That includes meeting with the SEC as well as obtaining all relevant licensing required for us to support our customers”.
An investigation carried out by Reuters published in September displayed Poloniex had allowed some customer to trade cryptocurrencies and with up to $2,000 worth of digital coins a day by providing minimal details such as a name, email address and country.
Allaire said that Poloniex had instituted full KYC checks for new customers, however he couldn’t confirm the exchange had the identities of all the current and existing clients.
He said, “I’m not sure that 100 percent of prior clients have gone through all their identity verification requests. I know they have a huge backlog of client in their KYC queues. But obviously now that we operate the company we’re going to ensure that the business is compliant in every way it needs to be.”
The exchange is not allowed to accept residents from New York because it doesn’t hold a state license that allows them to run a cryptocurrency exchange, but the Reuters investigation found to New York residents who had told Poloniex they lived somewhere else and were able to trade on the platform.
“Clearly, people can get round things like IP (Internet Protocol) restrictions, and other restrictions, and people do it all the time. People evade geo-blocking mechanisms, and it’s difficult to fully police. So it’s possible that some people have snuck through that, and that’s obviously something we take very seriously” Allaire answered when questioned.
Circle has stated in the next few years, it expects to grow the Poloniex exchange out to include other non-crypto type assets, such as physical goods as well as financial products such as derivatives.
Poloniex released a statement on its website stating. “We look forward to bringing Circle’s experience to increase the scalability and reliability of out platform and operations”