Goldman Sachs-backed Circle sees boom in crypto demand from institutional investors, despite bear market

Key Points
  • Circle, one of the best-funded blockchain start-ups, saw a 30 percent uptick in institutional investors on-boarding to its "Circle Trade" platform in May, when bitcoin was down 20 percent.
  • To match demand, the company is using more automation on its platform, catering to high-frequency trading and bigger block orders.
  • "Major institutional investors don't go through a telephone broker. They go through an electronic interface," Circle CEO Jeremy Allaire says. "We're maturing this into a more traditional product."
Jeremy Allaire
Cameron Costa | CNBC

Despite bitcoin's plunge last month, Goldman Sachs-backed start-up Circle had a big uptick in hedge funds and other big league investors joining its digital currency trading platform.

The company is making "Circle Trade" automated, so investors can place high frequency and block orders without talking to a human, the company announced Monday.

"In May, which was a challenging month, we saw a sharp increase of unique new counter-parties," Circle founder and CEO Jeremy Allaire told CNBC in a phone interview. "A lot of folks on the institutional side are on-boarding, and getting their ducks in the row."

Month over month, Circle says, it had a 30 percent increase in new institutional clients and was doing 15 times more transaction volume per day from a year ago. Meanwhile, the price of bitcoin fell roughly 20 percent in May.

Part of the feedback from these new clients, which include family offices and venture capital firms, was that "Circle Trade" in its current form wasn't equipped to handle the $100,000 or $1 million high-frequency equity trades clients were used to. Until this week, Circle employees at offices in the U.S., London and Hong Kong would manually quote a price over an instant messaging platform like Skype, then authorize those trades.

Circle, which facilitates roughly $2 billion in trades on the platform every month, announced Monday that the orders and settlements will now be available through an automated process.

"Major institutional investors don't go through a telephone broker. They go through an electronic interface," Allaire said. "We're maturing this into a more traditional product; it's much faster and a more flexible way to trade."

Circle Trade is one of the largest over-the-counter cryptocurrency trading desks for institutional investors, with a $250,000 minimum order size. The fintech company also operates a peer-to-peer payment network using blockchain, the technology that underpins bitcoin. The company acquired cryptocurrency exchange Poloniex in February.

Bitcoin has nosedived more than 50 percent in 2018 after regulatory crackdowns on fundraising frauds, high-profile hacks and a lack of new buyers.

Some bitcoin pundits have argued that more buy-in from the institutional investor class would help the crypto asset recover, after attracting a flood of investors in its 1,300 percent rise last year. Uncertainty from regulators and volatility has also prevented new, more skeptical investors from entering the market this year.

Circle is one of the best-funded blockchain start-ups, with investors including Goldman Sachs and Baidu.

Bitmain, best known as a crypto "mining" company, led the most recent $110 million strategic investment in Circle, which the company said brings its valuation close to $3 billion. The funding round also includes existing investors such as Breyer Capital, Tusk Ventures, IDG Capital, Pantera and Blockchain Capital.