TL:DR
•Circle’s SEC filing reveals that the company’s performance will be lower than expected due to the collapse of FTX and automatic conversions of USD Coin on Binance.
• Circle has invested $10.6 million in FTX Group, but has suspended all transactions with the company following its bankruptcy.
• The amended S-4 filing states that Circle will recognize impairment of its FTX Investments in the reporting period in which impairment indicators arose.
• For the first half of 2022, Circle reported $84 billion worth of USDC issued by either it or Coinbase—more than double the amount that was issued over the same period in 2021, according to its SEC filing; however, this was offset by $71 billion in redemptions, which more than tripled compared to last year.
• Binance’s decision to automatically convert USDC balances (along with Pax Dollar and TrueUSD) to its own BUSD has caused a decline in USDC usage.
Circle releases S-4 filing
In Circle’s recently released S-4 filing with the SEC, the company revealed that its performance will be lower than expected due in part to the collapse of FTX. Circle has suspended all transactions with FTX Group following its bankruptcy and will recognize the impairment of its FTX Investments in the next reporting period. For the first half of 2022, Circle reported $84 billion worth of USDC issued by either it or Coinbase—more than double the amount that was issued over the same period in 2021. However, this was offset by $71 billion in redemptions, which more than tripled compared to last year. Binance’s decision to automatically convert USDC balances (along with Pax Dollar and TrueUSD) to its own BUSD has caused a decline in USDC usage. In this blog post, we’ll take a closer look at what led to these events and what they mean for Circle’s business going forward.
Circle’s Troubled Investment in FTX
Circle made a risky bet when it invested $10.6 million in FTX Group, a crypto derivatives exchange founded by Sam Bankman-Fried—one of the industry’s most controversial figures. The investment was made through one of Circle’s venture funds, MVPQ Ventures, and was meant to help shore up FTX’s liquidity ahead of its public listing on Binance Launchpad. However, following FTX’s bankruptcy filing, Circle has suspended all transactions with the company and is taking steps to mitigate its exposure. In its amended S-4 filing with the SEC, Circle disclosed that it will recognize impairment of its FTX Investments in the next reporting period. This could have a significant impact on Circle’s financials going forward and is already putting downward pressure on its stock price.
The Impact of Binance’s USD Coin Conversions on Circle
Another factor that is impacting Circle’s business is Binance’s decision to automatically convert USDC balances (along with Pax Dollar and TrueUSD) to its own BUSD token. This has caused a decline in USDC usage and has resulted in some users moving their funds off of Binance altogether. While the full extent of the impact on Circle is not yet known, it is clear that this decision by Binance has had an adverse effect on the company. In its SEC filing, Circle disclosed that for the first half of 2022 it expects to issue $84 billion worth of USDC—more than double the amount that was issued over the same period in 2021. However, this increase will be offset by $71 billion in redemptions, which more than tripled compared to last year. Given these trends, it is likely that we will see a further decline in USDC usage and an increase in redemption rates in the second half of the year. This could put even more pressure on Circle’s business and result in even lower than expected performance for the company.
Circle’s recent SEC filing reveals that the company’s performance will be lower than expected due to the collapse of FTX and automatic conversions of USD Coin on Binance. These events have put downward pressure on Circle’s stock price and are likely to have a negative impact on the company’s business going forward.
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