Fed rate hikes double crypto firm Circle’s valuation

livemint.com:

The Federal Reserve’s decision to start raising rates has a surprising beneficiary: a cryptocurrency startup.

The new rate outlook helped crypto firm Circle Internet Financial Ltd. boost the valuation of its pending merger with a special-purpose acquisition company to $9 billion. Circle issues a so-called stablecoin, called USD Coin or USDC, that is a popular vehicle to buy crypto because it is pegged to the U.S. dollar.

Circle had previously struck a deal last July to merge with the same SPAC, Concord Acquisition Corp., at a valuation that is 50% lower than what it attained in February. In the intervening seven months, Circle more than doubled its expected revenue for 2022 and 2023, creating a new windfall for the crypto firm—and its bankers.

At the higher valuation, the boutique investment bank that advised Circle, ​Financial Technology Partners LP, now stands to earn a record payday of more than $800 million, according to a fee breakdown Circle detailed in prior securities filings. Circle disputes that it owes that much.

When Circle issues new USD Coins, customers send it a corresponding amount in dollars. Circle then invests those dollars in a portfolio of cash and short-term government securities to ensure USDC’s convertibility. With about $53 billion in USDC outstanding, the reserve portfolio that Circle manages is as big as a midsize U.S. bank.

Like a bank, Circle earns a yield on its book of assets, and that yield tends to rise when interest rates go up. In Circle’s case, it anticipates earning an extra $2.3 billion in interest income in the next two years, based on where interest-rate futures traded in mid-January and increased estimates of how much USDC will be in circulation by the end of 2023.

Unlike a bank,