Crypto needs more public companies – collapse of Circle IPO indicative of industry troubles

Key Takeaways

• Circle issues the USDC stablecoin, the world’s fifth largest cryptocurrency with a market cap of $44 billion
• Circle announced plans to go public in July 2021 at $4.5 billion valuation
• This valuation doubled to $9 billion last February, but deal was cancelled in December
• Crypto needs more public companies to establish legitimacy, our analyst Dan Ashmore declares 
• Circle claims it remains intent to go public in long-term, but Ashmore writes that this depends on certain variables

Things were rosy in the world of cryptocurrency back in 2021. 

An exchange by the name of Coinbase went public in April at a valuation of $86 billion. It was the first major crypto company to go public. It was immediately declared a financial giant on Wall Street, its market cap bigger than the stock exchanges it was traded on. Nasdaq’s market cap was $26 billion, while ICE (parent company of the NYSE) was valued at $67 billion. 

It was against this backdrop that Circle, the issuer of USD Coin, the world’s fifth-largest cryptocurrency and second-largest stablecoin, announced plans of its own to float publicly. Valued at $4.5 billion, it was slated to trade on the New York Stock Exchange under the ticker CRCL by the end of the year. 

Circle then began wrestling market share through its USD Coin from rival Tether, and crypto prices kept soared. By February 2021, its valuation doubled to $9 billion. And then everything changed. 

Bear market ends hopes of going public 

As the world transitioned to a tight monetary environment, with rates rising in response to the inflation crisis, the price of risk assets cratered. Crypto was the worst hit, with the market absolutely ravaged. 

This scuppered Circle’s plans to go public, with the company eventually cancelling them in December. A good way to assess how poor the timing would have been, had Circle gone public, is to look at the share price of Coinbase (I wrote a deep dive on Coinbase’s plight here). 

Even after a 45% to start the new year, the market cap still sits at $13 billion, down 85% from its $86 billion valuation when it went public. With this in mind, it’s not difficult to see why Circle elected to let the deal fizzle out. 

1/ Some big @circle news. This morning, we announced the termination of our proposed deSPAC transaction. While disappointing that we did not complete SEC qualification in time, we remain focused on building a long-term public company. https://t.co/R0XYfCFD54

— Jeremy Allaire (@jerallaire) December 5, 2022

Crypto needs public companies

The big loser in all this is crypto. I have written plenty about what I believe is the biggest problem to come out of the last year, and that is the hit to the reputation of the entire industry.

Not only that, but the continued lack of transparency surrounding so many centralised companies in the space is damaging. For too long, these companies have operated in the wild west world of zero regulation and free reign.

Binance presents as a good example. It published proof of reserves reports in the wake of the FTX meltdown, however Mazars, the auditing partner issuing the reserves, abruptly cancelled the relationship and abandoned providing such reports for all crypto companies. 

This came amid continued misunderstanding over what the reports signalled. Namely, these were declared audits by many in the crypto industry, yet in truth were nothing even close. There was no mention of liabilities, nor anywhere near sufficient detail to give any sort of confidence to investors. 

yes, but liabilities are harder. We don’t owe any loans to anyone. You can ask around.

— CZ 🔶 Binance (@cz_binance) December 7, 2022

The downfall of so many of these centralised players – Genesis, Celsius, Three Arrows Capital, Voyager Digital, BlockFi, FTX, just to name a few – has hurt the entire industry immeasurably. 

An increased number of public companies would help to counteract the reputational blow that crypto has taken. As poorly as Coinbase has performed for investors, its presence on the stock market does lend an air of legitimacy to an industry which is so badly in need of it. 

Circle claims it remains intent to go public, if the right moment presents itself in future. The entire crypto space should be hoping that proves true, as the industry continues to fight for legitimacy on the big stage.