It seems that the so-called “crypto winter” hasn’t been too nice to Circle, the Boston-based, Goldman Sachs-backed cryptocurrency exchange and infrastructure provider.
Over the past few days, the company, one of the first Bitcoin “unicorns” (Silicon Valley slang for companies valued at $1B+), has been subject to a series of shortcomings, including a sudden layoff and regulatory qualms. Let’s take a closer look at what’s up.
Regulatory Qualms
For those longest time, the U.S. Securities and Exchange Commission (SEC) has been coy about which cryptocurrencies are securities and which ones are not. Although it has given Bitcoin (and purportedly Ethereum) the stamp of its approval, no one knows what exactly is up with XRP and the assets listed beneath it on CoinMarketCap.
Thus, to avoid trouble, Poloniex, a long-time cryptocurrency exchange acquired by Circle, revealed last week that it would be delisting a number of popular digital assets for those in the States. The exchange calls this “geofencing”. By next Wednesday, the company will have blocked the markets for Ardor (ARDR), Bytecoin (BCN), Decred (DCR), Gamecredits (GAME), Neo’s GAS, Lisk (LSK), NXT, OMNI, and Augur’s REP. An announcement explained:
“Today’s action is a result of regulatory uncertainty in the US market. Specifically, it is not possible to be certain whether US regulators will consider these assets to be securities… We believe in the power and potential of these assets, and will continue to focus time and energy on supporting positive policy and regulatory developments.”
Crypto Boom-Induced Layoff?
On Tuesday, Jeremy Allaire, the co-founder of Circle, revealed that he and his staffers had decided to eliminate “approximately 30 positions”, a claimed 10% of the entire company.
Today we made organizational changes at Circle and eliminated approximately 30 positions, which is about 10% of our employees. We made these changes in response to new market conditions, most importantly, an increasingly restrictive regulatory climate in the United States.
— Jeremy Allaire (@jerallaire) May 21, 2019
In a three-part tweet thread, Allaire remarked that this move was a result of “new market conditions”, along with an increasingly stringent and heavy-handed regulatory environment in the United States. What makes this weird is that this layoff came “in response to new market conditions”, implying that Circle hasn’t been a beneficiary of the recent cryptocurrency rally, which hoisted BTC from $4,200 to $8,000.
This, of course, isn’t the first layoff seen in this current market cycle. As Blockonomi reported in April, Sirin Labs, a blockchain-friendly hardware creator, and security provider Ledger had laid off 25% of its staff and 10% of its staff, respectively.
Trouble In VC Land
Circle’s third strike has been that the firm is claimed to have cut its fundraising goal by 40%. Per an exclusive from The Block, which cited “sources familiar with the matter”, Circle is now seeking $150 million, a far cry from the $250 million target that was revealed by insiders earlier this year. Sources claim that this fundraising concern may have much to do with the recent regulatory issues, coupled with the fact that Circle’s core business, the over-the-counter (OTC) desk, has purportedly been hit by slimmer margins and more competitors.
The odd thing is, seemingly every accredited investor and all venture capitalists still want to throw money at this space, despite the bear market. For instance, Bitfinex was rumored to have secured over $1 billion in a week’s time for the sale of its own crypto token, LEO, while Kraken has just raised almost $10 million in a mere 24 hours during a public sale of shares. What’s more, ConsenSys, the Ethereum development consortium, has recently begun its search for $200 million from “outside investors,” after operating off Lubin’s Ether stash for years on end. With a revenue-to-market cap multiplier of over 50 times, it is likely that ConsenSys is confident that there is money on the table.
Maybe investors just don’t like Circle’s model or the fact that it was valued at $3 billion in 2018. At this point though, the industry won’t know until Circle announces (or doesn’t) the end of its round.
