NEW YORK, Dec 5 (Reuters Breakingviews) - Stablecoins are marketed as a kind of cryptocurrency that offers a steady, predictable value. For the companies that create them, the opposite turns out to be true. Circle Internet Financial’s plan to merge with a listed blank-check firm called Concord Acquisition (CND.N) fell apart by mutual consent on Monday. Since Circle is effectively impossible to value right now, it has probably done the market a favor.
The firm run by Jeremy Allaire planned to go public through a marriage with a special-purpose acquisition company, valuing it at $9 billion. Yet 18 months after initially announcing a tie-up, Concord still hadn’t received necessary approvals from the Securities and Exchange Commission. More recently, chaos gripped the crypto-universe after the collapse of trading firm FTX . Valuations of listed peers have collapsed; shares in exchange Coinbase Global (COIN.O) are down 80% this year.
Those unknowns make Circle’s worth anything but stable. Back in February there was $53 billion of its USD Coin in circulation, and the company was targeting $220 billion by the end of 2023. But now there’s only $43 billion. It’s a critical input for Circle’s value. The company takes customers’ money, hands them a dollar's worth of stablecoin and puts the real-world money in safe places like bank accounts and Treasury bonds, whose yields comprise the bulk of its revenue.
Going public now would also expose investors to other hard-to-price unknowns. Several U.S. legislators are cooking up rules on how to govern stablecoins, amid much confusion in Congress. Those could benefit Circle, or sideline it. USD Coin is regulated by a New York financial watchdog, unlike rival Tether, but lacks the secure trust-company structure of peers Gemini and Paxos. Circle could end up overseen by bank regulators, the SEC, or neither.
Circle’s boss Allaire may get a second crack at going public if these issues are settled. Until then, his stablecoin reserves ought to be earning a reasonable return – even if they’re shrinking. Circle holds about $32 billion in short-dated Treasury bonds that might yield around 4.5%. Even if it shares a third of those proceeds with exchanges that trade USD Coin, it should still be making $1 billion in revenue a year – twice its estimate of annual operating costs from February.
Meanwhile Circle has one thing that many technology companies don’t: $43 million of quarterly profit, without the adjustments and alterations that pervade tech-sector financial statements, is the kind of thing that ought to appeal to public-market investors – at least, in more stable times.
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CONTEXT NEWS
Circle Internet Financial and Concord Acquisition said on Dec. 5 that they had scrapped their planned merger. Circle runs USD Coin, a so-called stablecoin backed by U.S.-dollar assets, and would have become a publicly traded company had the deal been consummated.
Concord, a listed special-purpose acquisition company chaired by former Barclays chief Bob Diamond, agreed to buy Circle in July 2021. It reset the terms of the deal in February 2022, raising Circle’s implied valuation to $9 billion from $4.5 billion.
Circle was an investor in FTX, the cryptocurrency exchange run by Sam Bankman-Fried that filed for bankruptcy in November, holding what founder Jeremy Allaire described as a “tiny” stake.
The circulating supply of USD Coin was $43 billion on Dec. 5, according to CoinMarketCap, compared with $53 billion in February. At that time, Circle estimated there would be $110 billion of USD Coin in circulation by the end of 2022.
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