Circle IPO further legitimizes crypto in front of regulators and outsiders

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Circles merger with Concord Acquisition Corp, a special purpose acquisition company, or SPAC, values ​​Circle at $ 4.5 billion, and the combined entity is expected to debut on the New York Stock Exchange under ticker CRCL before the end of the year.

The merger / offer was widely applauded within the crypto industry. Vladimir Vishnevskiy, director and co-founder of Swiss wealth management firm St. Gotthard Fund Management AG, told Cointelegraph that Circle, the main operator of USD Coin (USDC), the second largest stablecoin by volume, has been around since 2014, and this is another example of an established player being recognized for his contribution to the ecosystem.

Forward and up

The overall crypto market may have moved sideways lately, but Circle has clearly moved up, closing the gap with stablecoins market leader Tether (USDT), which in February closed a settlement of 18.5. million dollars with the New York State Attorney General for misrepresenting the degree to which USDT was backed by a fiduciary guarantee. Vishnevskiy noted that USDC has gained market share from 14.3% to 23.5%, and now that it is made public, it is highly likely that this market share will increase further, as Circle will have to disclose the assets that support this USDC stablecoin to regulators. .

Circle probably doesn’t have any surprises when it comes to the assets backed by its coins. As has been widely reported, USDC’s US dollar reserves are verified monthly by the five major accounting firms Grant Thornton LLP for the express purpose of ensuring that USDC is always redeemable for dollars. .

Still, some wondered why Circle chose the PSPC route to access public stock markets. PSPCs, sometimes called blank check companies because investors give sponsors carte blanche, or blank checks to effect mergers, are a faster way to raise capital than traditional IPOs, but they sometimes favor investors. initiated at the expense of public investors, critics say.

Additionally, as John Griffin, James A. Elkins Centennial Chair in Finance at the University of Texas, told Cointelegraph:

Using a PSPC is no longer the preferred route for raising capital. SPACs peaked earlier in the year, and it is increasingly recognized that companies often do SPACs because they can’t withstand the scrutiny of an IPO.

But Circle, unlike many crypto firms, has mostly welcomed the regulation, as has the pioneer of crypto public offering Coinbase. So wouldn’t Circle too be able to survive the closer scrutiny by regulators, analysts and institutional investors demanded in the traditional IPO roadshow process if it so wished? Circle has always been very compliant, Griffin acknowledged, and so it makes it more confusing that he’s taking the SPAC route.

Owen Lau, executive director of financial services firm Oppenheimer & Co. Inc., told Cointelegraph that PSPCs are often favored by startups as a faster way to go public. Another draw is PSPC’s ability to inject capital into the business, Lau said, while David Trainer, CEO of investment research firm New Constructs, told Cointelegraph, Maybe people from Circle believed that not enough people would understand their business.

SPACs, unlike traditional IPOs, also allow companies to make profit and revenue projections. In its investor presentation that accompanied the Circles IPO announcement, for example, the company said it expected to have $ 190 billion USDC in circulation by 2023, up from 25. billion dollars today with a total expected transaction volume of $ 15 billion.

A bad time to exploit the public stock markets?

Some have criticized the timing of the IPO. When Coinbase was listed on the Nasdaq in April, crypto prices were skyrocketing and markets were inundated with liquidity. Since mid-April, however, Bitcoin (BTC) has plunged more than 50%, and many other cryptocurrencies have followed suit.

We are probably in the early stages of a so-called crypto winter, when interest in cryptocurrencies may wane over the next year and more after the huge surge from late 2020 to early 2021. That to me seems a bit early for Circle to [be] public market listing, Lisa Ellis, senior equity analyst at MoffettNathanson Research, told the Boston Globe.

Lau disagreed, explaining that the timing of an IPO is important for company insiders looking to sell their shares, but in the long run it doesn’t really matter. The market weighs on a company for a long period of time, and stocks fluctuate based on the fundamentals and the quality of the management of the company, not when the company goes public, he added.

Related: China’s Crypto Industry Is Gone? Beijing crackdown continues to send shockwaves

The timing of the circles is definitely late for the party, Griffin commented, adding, but you can’t blame them for it, no one has the perfect timing. But an announcement today is going to receive a lukewarm reception compared to what it would have been in April.

The timing may seem a bit off, however, this is something that I’m sure has been considered by the company and its advisers when making the decision, said Vishnevskiy, who called the recent weakness of the short-term phenomenon market. He added: This is a segment of the digital asset market with little competition, and the fact that they have decided to go ahead must mean that they are confident in a successful outcome and in carrying out the assessment.

Three sources of income

Circles’ investor presentation identified three important revenue streams. In addition to operating the core USDC market infrastructure, where it earns interest income on reserves, Circle also has a Transaction & Treasury Services (TTS) segment, with clients such as the FTX exchange. , Compound Labs and Genesis, as well as a third company. , SeedInvest, a participatory equity financing platform.

TTS, which generates transaction and usage fees, as well as revenue through spread capture, is the largest segment in terms of revenue and also the fastest growing. While USDC’s revenue is expected to quintuple from $ 40 million in 2021 to $ 196 million in 2023, TTS’s revenue is expected to increase nearly tenfold, from $ 65 million to $ 622 million according to the company, when TTS revenues will be three times greater than USDC revenues.

Amid China’s cryptocurrency crackdown, bitterness from investors, and the chairman of the Federal Reserve of the United States blowing up stablecoins, there was not much to cheer about. the crypto front lately, but the announcement of Circle Internet Financials’ initial public offering in mid-July showed that a crypto startup capable of attracting billions of dollars in new investment.

Circle then arguably offers more income diversification than the Coinbase crypto exchange whose income still depends to a large extent on the price of BTC and Ether (ETH). Additionally, Circle’s business model appears to be much more competitive than COIN, according to Trainer, as it leverages blockchain technology to ensure a seamless transition from fiat currency to digital currency.

Additionally, the trainer believes that Circle is not an existing technology / process with a blockchain veneer. It uses blockchain to improve the existing payment process and has real value to offer to the world. Lau, however, was not ready to reject Coinbase. The Coinbase divide is quite strong because of its brand, reputation on the ramp, technological expertise, regulatory compliance and first-come advantage, he told Cointelegraph, adding:

USDC is actually developed in collaboration between Coinbase and Circle. Partly because of Coinbases’ reputation and influence, the USDC has gradually taken a stake in the stablecoin space. Relatively speaking, there isn’t much differentiation you can do with a stablecoin, but you can really differentiate yourself as an exchange. Is the crypto sector consolidating?

How should this second major crypto IPO in 2021 be viewed in industry terms? If the direct listing of Coinbases was a landmark event for the crypto and blockchain industry, what about Circles IPO?

My first impression was that it was an aha moment, Lau told Cointelegraph. Circle did not emerge as a business going public anytime soon. It makes me believe that there are many black horses out there looking forward to going public soon. It also suggests that you don’t have to be very big like Coinbase to go public, he added. Griffin took a less optimistic view:

This could be another step forward for the industry, but not in a positive way. It signals the state of the market decline relative to the direct and hot listing of Coinbases. If the best Circle can do is a SPAC, then that’s a negative signal for other players with more fragile stories than the best they can hope for is a SPAC, although many are probably too late for SPAC night. .

Yet few expected the IPO process to be canceled. Imposing new stablecoins regulations under the STABLE Law or introducing a large central bank digital currency could impact the future of stablecoins, Lau suggested, but I wouldn’t say that ‘they would derail the public offer / merger. We’ll see how things go and keep our fingers crossed.

Additional validation for stable coins?

Overall, the [crypto] the market may have cooled, but there is still a lot of hot money out there, and blockchain remains a hot topic, said Vishnevskiy, while Stephen McKeon, professor of finance at the University of the ‘Oregon and partner of Collab + Currency, told Cointelegraph, the Circle transaction provides further validation of the stablecoins market and, most importantly, the market for services built on those assets.

All in all, I would see this event as further legitimization of the industry in the eyes of regulators and outside observers, Vishnevskiy summed up, adding that it is important given the global regulatory crackdown and the pressure we are under. witnessed in recent months.

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