The growth in Bitcoin and cryptocurrencies has encouraged many companies from the industry to turn to public markets. Circle Internet Financial is scheduled to go public through a reverse merger with Concord Acquisition (CND). While the crypto market did surge, it has been taking a beating lately. Given the current state of the crypto market and Circle's outlook, should you buy CND stock before the Circle merger?
In April, the cryptocurrency exchange Coinbase Global also made its public debut. The price action on the first day of trading was encouraging. However, the stock has been on a downtrend since then.
CND and Circle Internet details
On July 8, Circle Internet Financial announced that it's merging with Concord Acquisition, which is a SPAC sponsored by investment firm Atlas Merchant Capital. The SPAC raised $240 million in its IPO in December. Circle is one of the largest companies in the cryptocurrency sector. Circle was founded in 2013 by Jeremy Allaire and Sean Neville. It issues and maintains the stablecoin known as USD Coin (USDC), which is pegged to the U.S. dollar.
Through the merger, Circle will receive $276 million as SPAC cash in trust and $415 million in PIPE investments. The deal values Circle at close to $4.5 billion. In May 2021, Circle raised $440 million in a fundraising round involving big industry names like FTX, Digital Currency Group, and Fidelity Management and Research Company. This was one of the largest private funding rounds in crypto history. In April, another stablecoin issuer Paxos was valued at $2.4 billion after raising a $300 million Series D. After the merger gets completed, the combined company will start trading on NYSE under the ticker symbol "CRCL." The merger is expected to close by the fourth quarter of 2021.
Why is Circle Internet going public?
In an interview with CNBC, Jeremy Allaire mentioned that Circle’s decision to go public is twofold. First, it wants to capitalize on the growth in stablecoins. Second, it will increase the transparency around its stablecoin.
Why are stablecoins surging in popularity?
A stablecoin is a type of cryptocurrency whose value is tied to an outside asset, like a fiat currency or gold to stabilize its price, according to CoinDesk. The entity behind stablecoins sets up a reserve where it securely stores the asset or basket of assets backing the stablecoin. Stablecoins help users avoid price fluctuation or volatility on a day-to-day basis.
Is Circle a buy before the CND merger?
Stablecoins like USDC have grown in recent months. The circulating supply of USDC is nearly $26 billion. According to the investor presentation, the company expects the USDC circulation to rise to $190 billion by 2023. Stablecoin USDC is administered by Circle jointly with Coinbase.
Circle also recently launched a savings product, which is aimed at neobanks and fintech firms by lending market Compound that offers 4 percent interest on USDC deposits. This could get big financial players into crypto markets. The company is heavily investing in product development and engineering, which should drive the adoption of its stablecoin.
The company’s EV-to-2023 revenue multiple is 5.8 times. While there isn't another publicly-listed peer that's similar to Circle, given the huge growth expected in stablecoins’ circulation, the multiple seems justified to an extent.