Circle Announces Spin-Off of Poloniex

Less than two years after purchasing cryptocurrency exchange Poloniex, Circle has announced their intention of spinning off the company as a separate entity. Poloniex will be rebranded as Polo Digital Assets Ltd. and is going to be backed by an as-of-yet unnamed Asian investment company. The co-founders of Circle wrote in a blog post: 

“It is bittersweet for Circle to see this incredible product and business spin out on its own … We’ve made enormous progress with Poloniex, including massive infrastructure improvements, adding more fiat options with USDC integration, launching best in class native apps for traders, and building global operations capabilities that can deliver excellent customer service.”

Withdrawal From the U.S.

One major change that will occur is the withdrawal of Poloniex from the U.S. It will still be operating as an independent international company, but U.S. users have until December 15th to withdraw their assets. Trading will be suspended for those users on November 1st. 

Just because Poloniex is withdrawing from the U.S. doesn’t mean its plan for growth have diminished. According to executives within the company, they plan on spending $100 million on the development and expansion of the platform over the next few years. One such initiative is the reduction of trading fees to 0% from October 21st till the end of this year. 

Strategic Divestment

The reasons for Circle’s divestment seem to be mostly strategic. Co-founders Jeremy Allaire and Sean Neville said in the announcement that their center goal was to focus on building an open and accessible financial system. To them, this means prioritizing their crowdfunding platform, SeedInvest, and working on their stablecoin market. 

Circle purchased Poloniex for approximately $400 million in February 2018, when crypto was at its peak. Several cuts have occurred in the Circle ecosystem recently, with them ending their Circle Research newsletters and shutting down the Circle Pay application. All of this suggests that the crypto industry is going through a contraction after a string of mergers and acquisitions in the past few years. 

Future of Crypto Sector

One could argue that interest in the crypto markets is wavering, but at the same time, institutional money is flowing into the space, and the unnamed Chinese investment company sure seemed willing to put money in. More likely is that the ebb and flow of merger activity left some companies over expanded, and now they are trying to strategically align themselves with what they need to focus on in the next few years. 

It seems like Circle, even while backed by Goldman Sachs, was unable to make leeway in advancing Poloniex to the level of Coinbase or Binance and has decided to cut their losses. 

With Poloniex leaving the U.S. in order to maintain global competitiveness, and Binance recently withdrawing from the U.S., it seems like the crunch in funding is cutting out the most unprofitable places to do business. Binance has since released a special U.S. trading platform, but it is becoming clear that complying with the United States is a major hindrance to profitability.