You could say there was a certain feeling that went beyond the news.
On the surface, Circle‘s decision to stop offering bitcoin buying and selling services might have precedent. The company had long talked about its drive toward social payments, and its belief in the bitcoin protocol as a foundational layer for finance, not a currency for consumers.
It may not even be that impactful. Circle will continue trading (buying and selling) bitcoin on behalf of its customers, and continue using the protocol as the base for a new hybrid blockchian platform called Spark.
Yet, it seemed, in the hours after the news, there was little consensus about Circle’s decision and what it meant â€“ it was either a complete surprise or a long-expected pivot, depending on who you ask.
Reactions to the news were, as can be expected, mixed, and frustration among some of the startup’s customers â€“ particularly those who were using it as a portal to buy and sell bitcoin in the UK â€“ surfaced on social media as well.
One of those who wasn’t surprised by the decision was Joe Colangelo, president of the consumer advocacy group Consumers’ Research, who argued that Circle has signaled such a move “for some time now”.
He credited the shift to low revenues, arguing Circle could wind up reactivating the service under more favorable conditions in the future.
Colangelo told CoinDesk:
“If demand for bitcoin as an asset picks up I expect they’ll maintain an option to get back into the business of buying and selling bitcoin, the reality is that it’s probably not just profitable enough for them given the additional costs that come from complying with regulations and dealing with fraud.”
In comments to CoinDesk, Circle differed slightly, with representatives stating that too much of the business’s resources were going to bitcoin buying and selling, something they increasingly saw as different from their mission.
Unocoin co-founder and president Sunny Ray also expressed a lack of surprise, though he sounded a more critical note, calling it “short sighted” to “embrace” bitcoin as a digital alternative asset more akin to gold.
“They always said that theyâ€™re more interested in the transactional element of bitcoin and Â blockchain,” he said.
Others didnâ€™t see this one coming.
Among the industry segment surprised by the pivot was Chris Burninske, blockchain products lead for ARK Investment Management. Saying he was â€œpuzzledâ€ by the decision, Burninske speculated that a number of factors may have come into play here.
He told CoinDesk:
â€œI have to imagine the ability to buy and sell bitcoin using Circle was either a drag on its bottom line, that it was concerned by the IRS request of Coinbase, or that it was under pressure from some of its more conservative investors to shift focus away from Bitcoin.â€
The view proved popular with respondents, though Circle did notÂ indicate the move was connected the US government’s actions to increase digital currency tax collection.
Burninske went on to frame the pivot as part of a broader shift among bitcoin startups that have turned their attention to applications beyond the digital currency in a reflection of both sentiment in the finance industry as well as among prospective investors.
Further, like Colangelo, Burninske suggested that Circle might not leave its exchange service in the background forever.
“That said, these decisions are not set in stone, and it wouldn’t surprise me if Circle someday allows users to buy and sell bitcoin on its platform once again,” he remarked.
Among the seeming winners in the pivot is Coinbase, which, as Circle outlined in a blog post explaining the move, will become the startupâ€™s â€œpreferred exchangeâ€, directing customers to it if they want to buy or sell bitcoin.
Tim Draper, who is an investor in Coinbase through the DFJ Venture Fund, argued in an email that the shift followed a loss in market share by Circle in favor of Coinbase.
“Circle lost market share to Coinbase, so they decided to change direction,” he told CoinDesk. “Coinbase is the big winner here.”
Fred Wilson, another Coinbase investor through Union Square Ventures, said that while he doesnâ€™t understand the motivation behind Circleâ€™s move, it undoubtedly puts Coinbase in a strategic position within the digital currency exchange and wallet space.
“While I can’t really comment on why Circle made this decision, it leaves Coinbase as the dominant player in a rapidly growing new market and that feels really good to me,” Wilson said.
Although, not everyone saw this as positive. As R3 researcher Tim Swanson pointed out on Twitter, the wallet and exchange part of the ecosystem is increasingly a less crowded part of the industry.
Surprise aside, some industry observers told CoinDesk that, overall, the move is a smart one on Circle’s part.
Among those who praised the move was author William Mougayar, who told CoinDesk that it puts Circle in a position to nab a bigger share of the global remittance market.
“They are basically re-incarnating Venmo but with a global reach, and a friendly user interface,” he said. “This space desperately needs user-friendly experiences, and front-ending a money transfer app with a familiar UI is good news for consumer adoption.”
Needham & Co researcher Spencer Bogart emphasized that Circle isnâ€™t completely leaving bitcoin behind, positing that the startup is looking to trim services that are likely revenue-negative to operate â€“ pointing to other companies in the space that have pivoted in search of more revenue.
He also added that the move doesn’t reflect poorly on the digital currency itself.
“This doesnâ€™t mean that bitcoin isnâ€™t working and growing (it very much is), it just means that it’s very difficult to build a profitable, mainstream, regulatory-compliant business based on Bitcoin today,” he said, going on to conclude:
“At the end of the day, honey badger donâ€™t care.”
Pete Rizzo contributed reporting.
Disclaimer: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Circle and Coinbase.
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