Galaxy Digital Research Director: Where will the US crypto market and regulatory landscape go?

By Alex Thorn, Head of Firmwide Research, Galaxy Digital

Compiled by: Baishui, Golden Finance

I discussed the intersection between public markets and cryptocurrencies with the team at Galaxy Digital, which brought up an interesting point — regulators are also about to undergo a huge change.

A guest post from Alex Thorn, Galaxy Digital's Head of Firmwide Research, explaining where we are, what's changing now, and where he thinks we're headed. I hope this is valuable information and perspective for everyone.

The following is a guest post by Alex:

Bitcoin is the biggest winner of the election so far. The world’s oldest and largest cryptocurrency is up 40% since Nov. 5, and there’s reason to believe there’s more to come.

Other crypto assets will also benefit. Investors anticipate a shift in the SEC’s approach to digital assets, and many have written about how a relaxation or rollback of the SEC’s classification of crypto assets as securities would support crypto markets and stakeholders.

Less discussed is how the public markets will benefit from the new approach to digital assets in the U.S. Since Coinbase went public via a direct listing in 2021, only Bitcoin miners and a few small SPACs have successfully tapped the public markets. Current SEC Chairman Gary Gensler took office on April 17, 2021, just four days after Coinbase’s direct listing, and since then, the public markets have been largely closed to crypto companies. But that’s all about to change. The public markets are about to get a taste of crypto.

Signs of this shift may have emerged in the past few weeks. Japanese cryptocurrency exchange CoinCheck announced that it has received approval to go public through a US SPAC. This will be the first cryptocurrency exchange to gain public market status in the US since Coinbase, but it won’t be the last. SPAC shareholders Thunder Bridge IV (ticker: THCP) will vote on the merger on Wednesday, December 5, and the merger is expected to be completed around December 10.

Currently, investable cryptocurrency stocks in the U.S. include Coinbase, bitcoin miners, balance sheet holders like MicroStrategy, and a range of crypto-related fintech companies like PayPal and Robinhood. But expected changes in the leadership and posture of the SEC could finally open up the public markets to crypto companies in a meaningful way, leading to a massive expansion of the crypto stock market.

The expansion of the crypto-equity space, including exchanges, brokerages, data companies, infrastructure providers, and more, is a boon to both venture and public market investors. By my count, at least 300 startups have raised $50 million or more in venture funding since 2018, and more than 50 have raised $100 million or more. Venture investors could help reinvigorate the venture funding environment that has languished over the past two years, while public market investors will gain more ways to invest in this growing industry.

Broadening access to public markets would also reinvigorate the U.S. cryptocurrency startup scene. The SEC’s current posture incentivizes venture investors to focus on complex token-based transactions rather than traditional businesses, which could hurt the entire crypto ecosystem. Certain equity startups, especially those that deal directly with digital assets, such as exchanges and brokerages, have mostly moved overseas. But a change in the regulatory environment and open public markets could revive U.S. startup activity, leading to more jobs and capital formation in the U.S.

Bitcoin and cryptocurrencies are not illegal in the United States, but over the past four years, banks and market regulators have been working to curb their growth or shut them down entirely. Jurisdictions such as the UK, Europe, the Middle East, Hong Kong and Singapore have taken advantage of this restrictive U.S. posture to create clear regulations and entice companies to leave the country, but that is about to change.

The market expects a major shift in the US’s attitude towards cryptocurrencies, which will support a range of industry sectors such as stablecoins, token issuance rules, taxation and compliance reporting, etc. But don’t forget the public markets. It’s a new dawn for digital assets in the US, and the public markets may join the party in earnest.