In a major development for the cryptocurrency space, Circle leading stablecoin company-will go public. Like most companies, Circle has waited for just the right economic climate to pull out this rabbit. However, the need for speed would indicate that such an opportunity will not be open-ended.
Circle’s choice to go public through a SPAC is in line with Coinbase’s recent move away from the more traditional path of an IPO. The benefit of going public through a SPAC includes loosened regulatory requirements compared to an underwriter selling new shares directly to the public.
Regulatory Outlook and Valuation
The SEC Chair, Gary Gensler, has signaled a crackdown on SPACs, so it’s pretty clear why Circle can’t afford to wait for more congenial markets. Valuation of $4.5 billion notwithstanding, that’s an incredible round for a cryptocurrency company despite what feels like an unconscionable market.
Circle’s Market Position
Circle is not just any crypto company; its valuation reflects its potential in the market.
At this point, regular readers of this newsletter will be somewhat aware of my thoughts regarding the longer-term prospects for Central Bank Digital Currencies – more appropriately CBDCs – in the United States. Suffice it to say that, without a fundamental change in how the present system is set up, any semblance of a centralized FedCoin is unlikely to materialize anytime soon.
Most money in the United States is created by banks, rather than by the Federal Reserve or the Treasury. If somebody takes out a loan, it is created in a few taps on the keyboard by the bank. According to fractional reserve banking, only part of the money that it lends has to be kept in a reserve with the bank. During the pandemic, the requirement was dropped to zero, which means that the banks can 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.
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