The Breakdown - Big Day For Crypto Biz As Circle Prepares for IPO

Episode Date: April 3, 2025

After years of trying, Circle is finally going public. NLW explores the conversation around the latest information released by the company, and what it says about the state of the markets. Is this a last hurrah for the crypto natives before the big banks come in? Sponsored by: Crypto Tax Calculator Accurate Crypto Taxes. No Guesswork. Say goodbye to tax season headaches with Crypto Tax Calculator: Generate accurate, CPA-endorsed tax reports fully compliant with IRS rules. Seamlessly integrate with 3000+ wallets, exchanges, and on-chain platforms. Import reports directly into TurboTax or H&R Block, or securely share them with your accountant. Exclusive Offer: Use the code BW2025 to enjoy 30% off all paid plans. Don’t miss out - offer expires 15 April 2025! Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today. Buy now on Ledger.com. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, April 2nd, and today we are talking about crypto IPOs. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Well, after many years of trying, Circle is finally going public. The Stablecoin issuer filed their prospectus with the SEC yesterday, setting them up to IPO

sometime later this year. The prospectus didn't include a target valuation or number of shares to be offered, but we did get a ticker symbol, CRCL. In the document, CEO Jeremy Aller said, for Circle, becoming a publicly traded corporation on the New York Stock Exchange is a continuation of our desire to operate with the greatest transparency and accountability possible. Now, this move is a long time coming. with Circle attempting to go public for basically the last four years. In 2021, they took all the steps

required to go public via SPAC. That deal fell apart after the SEC dragged their feet and failed to approve the deal by the end of 2022. Circle started trying again at the end of last year, filing confidential draft documents with the SEC to begin the IPO process. Now, one of the big questions will be how the company is valued. The SPAC deal attached a $9 billion valuation to the company. A lot has changed both in the public and the crypto market since then. And recent reports suggest the company company is more likely to come in between $4 and $5 billion. The new prospectus also gives us a first look at the profitability of Circle. The company brought in $1.6 billion in revenue last year, which was a 16% increase from the year prior. However, profits have been wildly fluctuating

for the past few years. In 2022, the firm posted a $761 million net loss as the entire crypto ecosystem fell apart around them. Circle's profits returned in 2023, recording $267 million in net profit. Last year was a little weaker with a 41% drop to profits of $100,000. $155 million. The biggest cost weighing on Circle's balance sheet is their revenue sharing agreement with Coinbase, which paid out $908 million last year. Analyst Nick Faneck noted that this means Coinbase is making more money from USC than Circle is. Ninety-nine percent of the company's revenue is generated by simply holding treasury bills and gathering the interest payments, which potentially concerns some investors as making Circle overly reliant on interest rates.

Omar Conjy of Dragonfly Capital commented, nothing to love in the Circle IPO filing and no idea how it prices at $5 billion. Gross margins getting crushed with distribution costs, core U.S. market being deregulated, and banks and financial institutions about to crash the private party. Spending over $250 million per year in compensation, and another $140 million in general and administrative costs. Core income driver rates have already topped it heading lower.

32x multiple on 2024 earnings for a business that just lost its mini-monopoly and is facing severe headwinds is expensive when growth is structurally challenged. TLDR feels like a Hail Mary for some liquidity before the squad rolls in. Now, this filing comes just as stablecoin legislation is getting towards the finish line in Congress, with the House scheduled to amend and vote on their version of the bill earlier today. The bill might give Circle a temporary advantage over tether in the U.S. market, but as Conji notes, the big financial institutions are about to enter the stable coin space in a big way. The Circle IPO could end up being a litmus test for how investable stable coins are as a business.

Felix Javan, the host of the Forward Guidance podcast, was blown away by the top line numbers, tweeting, look at Circle's cash flow from operations growth. My God, absolute behemoth. Analyst Riddle 245 wrote, everyone wants to invest in stable coins, but Circle, which is the number two player, has to pay $1 billion to Coinbase just to circulate USDC. If the Fed cuts 200 basis points, they lose 400 million of revenue and go in the red. Now, I'm not sure that's exactly how it works. The Coinbase deal basically acts as a pass-through of interest income. Still, it will be interesting to see how Wall Street values stablecoin companies now that they have their first opportunity to invest. Jeff Park of Bitwise suspects the real value was elsewhere, tweeting,

the Coinbase Circle Revenue Split tells you all you need to know to confirm the centralized crypto industry is no different from traditional industries. Distribution is king. Now, for many, one of the big takes coming out of the Circle IPO filings was that their business looks kind of rough compared to their largest competitor. Finance lawyer Scott Johnson wrote, damn, Coinbase takes well over half of Circle's top line reserve revenue. Are we sure Circle's not a subsidiary?

Actually crazy when comparing these financials against Tether. Different game entirely. Now, speaking of Tether, yesterday we got Tethers' end-of-quarter Bitcoin buy, a cool 8,888 Bitcoin for around $735 million. The company now owns the sixth largest Bitcoin wallet on the network with over 92,000 Bitcoin worth more than $7.8 billion. Their Bitcoin accumulation has now been ongoing since September 2022. Tether claims that these recurring Bitcoin buys represent 15% of their net profits each quarter, which would suggest that they made just shy of $5 billion in quarter one.

If that's true, Tether seems to have made 30 times more profit in the last quarter as Circle made for all of last year. And again, that's if that's true. But if it is, Tether has around three times the market cap of USC, so the difference would be largely about Circles costs. Now, obviously, the business models are very different. Tether has been saving on auditing and other compliance costs, but it has brought up the question of whether people are actually excited about stable coins in general or Tether specifically. Sam Casmean of Frack's finance wrote, Hot take, what if it turns out stable coins alone are actually incomplete and unprofitable, without a tightly coupled chain ecosystem, and Tether was the one-time single exception to the rule.

Ultimately, this is both an inevitable and an important step on the path to institutionalization of crypto. I think U.S.D.C. is extremely valuable and wish nothing but good things for the company. Today's episode is brought to you by Crypto Tax Calculator. If you're looking for accurate crypto taxes with no guesswork, check out Crypto Tax Calculator. Get accurate CPA-endorsed tax reports with full support for IRS rules. For those who have fallen down the on-chain rabbit hole, CTC has you covered with more than 3,000 integrations. They have full support for defy staking and NFTs. Import directly to TurboTax or H&R block or share securely with your accountant. Create an account, import your sources, and review. It's that easy.

Hello, friends. I am thrilled to share that Ledger is once again partnering and sponsoring with The Breakdown. Many of you know, but for those of you who don't, Ledger is the most secure hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, Ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services, all of which are designed to make digital ownership more secure and accessible. You can buy your Bitcoin with Ledger and Ledger Live and so much more. Basically, not only did they want to keep your assets secure, they want you to be able to do more with them. Ledger's newest devices, the Ledger Stacks,

and Ledger Flex, introduced the world's first secure touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger Stacks and Ledger Flex, the company also launched the Ledger Security Key app, offering a safer alternative to traditional passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks, once again, to Ledger for sponsoring the show. Now, speaking of big themes for 2025, another one that we've been talking about a lot is, of course, tokenization. And indeed, rather than competing on stablecoins, it appears that Cracken has their sites locked on asset tokenization as their next play. Speaking with the block, Cracken Co-Cecoceeo-Cept

said, How do we start thinking about new structured products leveraging crypto-liquidity rails? Stablecoins are one of those, but imagine what stablecoins have done so far. We've got thousands of new products that are going to be equivalent or larger than that. Now, Tether currently has a market cap of around $144 billion, but Sethi sees the opportunity for tokenization as dwarfing stablecoins. He continued, one tokenized equity is going to be equivalent or larger than Tether. Now you can have five, 500, a thousand of those tokenized equities. Then you do futures and options training on top of that. The market is just going to get that much bigger. That much bigger, that much larger, that much faster than what we're used to. Now for Crackin, the opportunity for tokenized assets is not a U.S. story. Financial

access is already pretty good for anyone plugged into U.S. financial rails. Instead, Sethi views the tokenization story as playing out abroad. Even developed regions like the U.K., Europe, and Australia don't have easy ways to natively access U.S.-based products. He said, By the time you get access to a financial product that we're used to in the U.S. without friction, you're bludgeoned along the way where you're like, I really don't want to do it. Cracken, of course, recently acquired derivatives trading platform Ninja Trader to provide them with the licensing and infrastructure to offer derivatives in the U.S. Another piece of the puzzle is Crackins recently launched Layer 2 called Inc.

And the blockchain is already hosting some tokenization experiments, being one of a few to offer tokenized shares in an Apollo Global Management Credit Fund. Sethi said, if you want to get access to an 11% product with $1,000,000, we're going to enable that. If you want to have access to banking and financial services through your bank, but you don't want to use Cracken, we're going to enable that. If you want to be able to use collateral through tokenized equity or commodities in the future or a unified balance structure to be able to borrow, we're going to enable that too. When asked if this move towards full-service finance puts Crackett in competition with Robin Hood, Sethi argued that everyone is in competition with each other. Increasingly, there isn't a bright line division between banking, custody, and trading services. Sethi added, so you can't think of this as just an exchange layer. It's like a technology layer

with an exchange that's got a trade engine, that's got liquidity, and you can build a multitude of applications on top of it. So we look more and more akin to another technology company that's enabling a massive ecosystem to be adopted. We don't have to own it. Sethi said that Cracken wasn't necessarily aiming to IPO in the coming years. He said that the company released their financials in January and will do so each quarter moving forward as a transparency measure, rather than to drum up interest for a public offering. Seffi commented, if it makes sense for us to go public at a certain point over the course of the years, we will on behalf of the clients, not because we need it.

Now lastly today, since we've been in the tokenization and institutionalization world, BlackRock CEO Larry Fink is sticking to his guns regarding the crypto narrative. This week, he published his annual letter to shareholders with a heavy emphasis on Bitcoin and tokenization. Fink is very concerned about spiraling government expenses, which are largely possible due to the exorbitant privilege of issuing the global reserve currency. He noted that the Times Square debt clock has grown at three times. times the pace of GDP since it was installed in 1989. Fink claimed that at this pace

mandatory spending and interest expense will outpace government revenue by 2030, creating a permanent deficit. He wrote, The U.S. has benefited from the dollar serving as the world's reserve currency for decades, but that's not guaranteed to last forever. If the U.S. doesn't get its debt under control, if deficits keep ballooning, America risks losing that position to digital assets like Bitcoin. Now, turning to tokenization, Fink argued that putting stocks and bonds on the blockchain is inevitable, comparing it to switching from the postal service to email. He wrote, Every stock, every bond, every fund, every asset can be tokenized. If they are, it will revolutionize

investing. Markets would need to close. Transactions that currently take days would clear in seconds, and billions of dollars currently immobilized by settlement delays could be reinvested immediately back into the economy generating more growth. Fink argued that tokenization is democratization, and that investment opportunities usually reserved for the wealthy, need to be offered to smaller investors using blockchains to bridge the gap between public and private markets. Now, these comments are not new from Fink, but their intensity has certainly increased. This is the first time, for example, that Fink explicitly claimed that Bitcoin could usurp the dollar's global reserve currency status one day.

Mike Dutus of Sixth Man Ventures commented, wild stuff used to only be a talking point of crazy fringe Bitcoin Maxis. Cynthia Lummis, meanwhile, is claiming that this is a good reason to fill up the Bitcoin's Strategic Reserve, commenting, reasons to pass the Bitcoin Act and buy baby buy. One, the Bitcoin Act will help America get our debt under control. Two, only one nation will have the Jews to own enough Bitcoin to underpin its currency as the world's reserve. The clock and the next block are ticking.

Let's go. Now, another reason this is striking is that Fink is in the middle of his first major Bitcoin drawdown. And rather than Fink cashing the checks from the record-breaking Bitcoin ETF and moving on to the next asset class to financialize, Fink is not doing that. He's sticking with Bitcoin and tokenization as his big plays for this decade. Nate Garassi, the president of the ETF store, tweeted, BlackRock CEO Larry Fink says,

One day, I expect tokenized funds will become as familiar to investors as ETFs. They're all in. Hope you're paying attention. Alicia Painter, who has worked at numerous Bitcoin companies, wrote, Seeing this in Larry Fink's annual letter was surreal. I remember sitting in my Harvard Business School classroom in 2019, discussing Breton Woods, the fall of the gold standard, and the rise of the U.S. dollar is the global reserve currency.

I brought up Bitcoin, and the idea was immediately shot down by the private equity bros who scoffed at the idea of anything ever touching the infallibility of the USD. and several of them were former senior BlackRock executives. Six years later, and the CEO of BlackRock himself is questioning the infallibility of the U.S. dollar. Nothing is infallible, but Bitcoin comes pretty close. And that, friends, is going to do it for today's breakdown. Appreciate you listening, as always. And until next time, be safe and take care of each other. Peace.