Crypto Company Circle Focuses on Growth After Canceled SPAC Merger

by Arthur · February 23, 2023

Circle Internet Financial Ltd. wants to grow its workforce by as much as 25% this year, chief financial officer Jeremy Fox-Geen said, as the cryptocurrency operator continues to expand despite its recently canceled deal to go public and industry-wide layoffs.

The Boston-based company, which operates the USD Coin stablecoin, or USDC, had about 900 employees at the end of last year, and by 2023 it expects an increase of 15% to 25%, or another 135 to 225 workers, he said. This is a lower growth rate than it had in 2022, when the number of employees roughly doubled from 2021.

Circle is still hiring, even though many crypto companies are laying off employees and some have filed for bankruptcy following the launch of stablecoin TerraUSD last spring.

“We are growing and investing and we are fortunate to be in a financial position to be able to maintain our investments,” said Mr. Fox-Geen, who joined Circle in 2021 from real estate investment trust Safehold Inc.

“We have carefully slowed down growth and are focused on what matters most.”

Circle last year raised $400 million in a funding round from a group that includes asset managers BlackRock Inc. and Fidelity Investments Inc., bringing its total funding to $1.1 billion.

The crypto company had been preparing to go public via a merger with a special purpose acquisition company, a move to gain access to the capital market, improve transparency and expand its business further internationally.

But Circle and the SPAC, Concord Acquisition Corp., called off their merger in December after several rounds of questions raised by the Securities and Exchange Commission about its disclosures caused Circle to miss a deadline to close the deal despite responding to the regulator’s questions. A SPAC typically has as long as two years to find its merger partner, clear the SEC’s review process and complete the deal.

Circle’s offer required the SEC to approve the proposed merger by declaring the registration statement effective. If the deal doesn’t clear the SEC’s review process in time, the SPAC must return the money.

Circle, which was founded in 2013, intends to make another bid to go public, but probably not this year, Mr. Fox-Geen said. It’s waiting for better market conditions and more distance from the TerraUSD crash and the implosion of the crypto exchange FTX for public market investors to reconsider the future of digital asset businesses, he said. “We plan to continue on our path to going public and will take the necessary steps to achieve that as soon as practicable,” he said.

Crypto businesses are facing increased regulatory pressure. Circle in 2021 said Poloniex LLC, its defunct crypto exchange business, paid $10.4 million to settle a case brought by the SEC. Poloniex neither admitted nor denied the SEC’s allegations that it failed to register as a national securities exchange.

“Maintaining our regulatory position with a compliant attitude, good relationships and most importantly just doing business the right way is critical to our future success,” said Mr. Fox-Geen.

The company reported revenue and interest income of $274 million and net income of $43 million for the quarter ended Sept. 30, the most recent period available. For the previous quarter, it had revenue and interest income of $19.6 million and a net loss of $138.7 million.

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Circle is investing in technology and manpower to prepare for things that stablecoins can eventually do, said Joseph Vafi, managing director of equity research at investment bank Canaccord Genuity LLC. “Today, it mostly helps crypto traders move in and out of trades, but not completely off the blockchain,” he said. “Tomorrow it could help settle trades in other asset classes like stocks, and later it could be a way for people to buy goods and services.”

Circle said it had $44.69 billion in USDC reserve funds as of Dec. 31, up from $42.42 billion a year earlier. The volume of issued USDC stablecoins was $42.11 billion as of Tuesday, down about 20% from a year earlier, due to the withdrawal of investors in the crypto market, according to usdc.cool, a stablecoin tracker from Web3 development firm M2 Labs.

Traders in decentralized finance, or DeFi, generally prefer Circle’s USDC to Tether, run by rival stablecoin business Tether Holdings Ltd., in part because it’s easier and cheaper for financial firms and individual traders to create and redeem, said Riyad Carey, research analyst at the crypto data firm Challenger Deep SAS, which does business as Kaiko. Although in recent months crypto investors have diversified among different stablecoins, Tether is the best known and most traded.

Circle remaining privately held for now is more of a missed opportunity than a roadblock, said Michael Miller, an equity analyst at financial services firm Morningstar Inc.

The company’s payments-oriented business model puts it in a more solid financial position than crypto firms that specialize in trading, lending or mining, he said.

With the SPAC deal timed out and the reduced prospects for additional funding given recent hurdles in the crypto industry, Circle will need to be more careful about how it manages its investment spending and cost structure, Miller said. “Not having access to additional funds will make it more difficult to grow,” he said. “You can’t scale up as quickly with less access to capital.”

Write to Mark Maurer at [email protected]