Circle IPO further legitimizes crypto before regulators, outsiders

Circle’s 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 the ticker CRCL before the end of the year.

The merger/offering was generally applauded within the crypto industry. Vladimir Vishnevskiy, director and co-founder of Swiss wealth management firm St. Gotthard Fund Management AG, noted to Cointelegraph that Circle, the principal 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 rewarded for their input into the ecosystem.”

Onward and upward

The overall crypto market may be moving sideways lately, but Circle has clearly been moving forward, closing the gap with stablecoin market leader Tether (USDT), which in February reached an $18.5-million settlement with New York State’s Attorney General for misrepresenting the degree to which USDT was backed by fiat collateral. Vishnevskiy noted, “USDC has gained market share from 14.3% to 23.5%, and now that it is going public it is highly likely that this market share will increase further, as Circle will have to disclose the assets that back this USDC stablecoin to the regulators.”

Circle is probably not harboring any surprises with regard to the assets backing its coins. As has been widely reported, USDC’s United States dollar reserves are attested to each month by top-five accounting services firm Grant Thornton LLP for the express purpose of ensuring that USDC is always redeemable for dollars.

Still, some were puzzled why Circle chose the SPAC route to access public equity markets. SPACs, sometimes called blank check companies because investors give sponsors a free hand, or “blank check” to make mergers, are a faster way to raise capital compared with traditional IPOs, but they sometimes favor insiders at the expense of public investors, according to critics.

Moreover, as John Griffin, who holds the James A. Elkins centennial chair in finance at the University of Texas, told Cointelegraph:

“Utilizing a SPAC is no longer the favored route to raising capital. SPACs peaked earlier in the year, and it is becoming recognized that firms often do SPACs because they can’t withstand the heavy scrutiny of an IPO.”

But Circle, unlike many crypto firms, has mostly welcomed regulation — as did the crypto public offering pioneer Coinbase. So, wouldn’t Circle, too, be able to survive the closer examination by regulators, analysts and institutional investors demanded in the traditional IPO roadshow process if it so chose? “Circle has historically been very compliant,” acknowledged Griffin, “and thus it makes it more puzzling that it is taking the SPAC route.”

Owen Lau, executive director at financial service firm Oppenheimer & Co. Inc., told Cointelegraph that SPACs are often favored by startups as a faster way to go public. Another attraction “is the ability for the SPAC to inject capital to the company,” said Lau, while David Trainer, CEO of investment research firm New Constructs, told Cointelegraph, “Perhaps, the Circle folks thought that not enough people would understand their business.”

SPACs, unlike traditional IPOs, also permit companies to make earnings and revenue projections. In its investor presentation that accompanied Circle’s IPO announcement, for instance, the firm said it expected to have had $190 billion of USDC in circulation by 2023 — up from $25 billion today — with a total transaction volume of $15 billion projected.

A poor time to tap public equity markets?

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

“We are likely in the earlier stages of a so-called…