July 11, 2019

Breakingviews: Crypto blank-check deal has at least one virtue

by Breakingviews.

Take a blank-check buyout company, fuse it with a business that services the highly speculative cryptocurrency market, and the result is risk on steroids. That hasn’t deterred Singapore entrepreneur James Tan. He’s using his special purpose acquisition company (SPAC), 8i Enterprises Acquisition, to buy a fledgling digital asset outfit called Diginex. Regardless of whether that’s good for his shareholders, the deal could help sort crypto reality from hype.

Led by a group of mostly British ex-investment bankers, Diginex is looking to sell traditional institutional investors on the merits of cryptocurrencies and their underlying blockchain technology. Last month it began offering cryptocurrency trading technology to Fidelity National Information Services, a fintech outfit better known as FIS. Later this year it plans to launch its own exchange for trading cryptocurrencies and other digital assets, as well as a fund of hedge funds.

The announcement of Facebook’s planned cryptocurrency last month and moves by established players like JPMorgan and Fidelity to get into the digital space have stirred excitement, and contributed to a tripling of bitcoin’s price since March, to nearly $12,400. Blockchain enthusiasts talk about tokenizing trillions of dollars’ worth of assets ranging from Apple shares to real estate. Those hopes still remain the stuff of dreams, though.

Diginex, meanwhile, is not a first mover. It lacks the deep pockets of native crypto outfits like San Francisco-based Coinbase, hedge fund Pantera Capital or the Winklevoss twins’ Gemini Exchange. Tan himself brings no blockchain or SPAC experience to the table, having previously invested in a number of internet-related outfits. The acquisition, which values Diginex at $276 million, will add $55 million of cash to its balance sheet.

It all adds up to a highly uncertain venture. Yet the new Diginex promises to shed light on a crypto space tarred by dodgy trading practices and a history of financing illicit activities. The company will have to present its financials in filings to the U.S. Securities and Exchange Commission, and win approval from the SPAC’s shareholders. If it does, it will provide a quarterly gauge on whether digital dreams are becoming reality. That transparency is the deal’s overriding virtue.


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