In a significant move for the cryptocurrency industry, Circle, a leading stablecoin company, has announced plans to go public. Like many companies, Circle has been waiting for favorable economic conditions before making such a decision. However, the urgency to act quickly suggests that the opportunity may not be available indefinitely.
Circle’s decision to go public via a Special Purpose Acquisition Company (SPAC) rather than the traditional Initial Public Offering (IPO) method mirrors the approach taken by Coinbase. This strategy allows for less stringent regulatory requirements compared to issuing new shares to the public through an underwriter.
Regulatory Landscape and Valuation
U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler has indicated a crackdown on SPACs, making it clear why Circle might not be able to wait for better market conditions. Despite the uncertain market, a valuation of $4.5 billion is impressive for a cryptocurrency company.
Circle’s Market Position
Circle is not just any crypto company; its valuation reflects its potential in the market. Regular readers of this newsletter will know my thoughts on the future of Central Bank Digital Currencies (CBDCs) in the U.S. It’s unlikely that a centralized FedCoin will emerge soon, given the current system setup.
Most U.S. dollars are created by banks rather than the Federal Reserve or Treasury. When someone takes out a loan, the bank generates the money with a few keystrokes. With fractional reserve banking, banks only need to hold a small portion of the money they lend out. During the pandemic, the reserve requirement was set to zero, allowing banks to lend without holding reserves.
This system reduces systemic risk; if one bank fails, it won’t collapse the entire economy. In the future, dollars in circulation will be traceable back to their origin, possibly with a premium for those issued by more stable institutions.
Image Credits: Chaitanya Tvs / Unsplash
The Role of Stablecoins
Many financial institutions might choose to rely on third-party services to issue stablecoins rather than creating their own. Currently, USD Coin (USDC) is the most widely circulated and compliant with U.S. regulations.
USD Coin has a strong potential to become the most widely used digital dollar. Although it lags behind Tether (USDT) in market dominance, USDC is gaining ground. On July 7, Tether had a turnover of approximately $51 billion, while USDC facilitated $2.3 billion. However, market capitalization, a more accurate measure of money stored as stablecoins, shows USDC rapidly increasing its market share.
Growth Indicators
The lending rates on top of DeFi platforms indicate USDC’s stability. Typically, staking Tether offers a slightly higher return than USDC, but USDC is viewed as a more stable investment vehicle. As the entire cryptocurrency industry experiences explosive growth, USDC’s market share continues to rise.