RPT-BREAKINGVIEWS-Circle IPO tethers rival to an unhinged valuation

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Stephen Gandel

NEW YORK, June 9 (Reuters Breakingviews) - Sometimes the devil is in the big picture. Circle Internet Group’s CRCL.N shares have soared roughly 260% in the days following the cryptocurrency firm’s initial public offering. That’s an appealing result for Tether: depending on how investors read the numbers it has disclosed thus far, similar success would vault the still-private rival to a valuation of $60 billion – or make it the most valuable financial company on earth. It’s a self-evidently questionable result.

Both companies issue stablecoins, digital tokens that peg their worth to a traditional currency. Crucially, U.S. legislators look poised to enshrine their role in the country’s financial system, buoying projections that the total value of stablecoins in circulation will rise 10-fold over the next decade. Clearly, investors like the odds. At a $24 billion market value, Circle is trading at a sky-high multiple of over 150 times its $156 million in earnings last year. Payment processor Visa, by contrast, trades at a multiple of 36 times.

Such bullishness would be more easily explained if Circle were the only or largest provider of stablecoins. It is neither. Of the $250 billion of such tokens outstanding, according to research outfit DeFiLlama, Tether accounts for $155 billion, versus Circle’s $61 billion. They hold similar amounts of assets in reserve to fund redemptions. If Tether were valued at the same multiple of its hoard’s worth that Circle now is, it would translate to roughly $60 billion. That’s five times the level at which Cantor Fitzgerald valued its effective 5% stake in the company at one point.

Viewed through the lens of earnings, though, the math gets overheated. Tether says it made $13 billion in 2024. Apply Circle’s current multiple, and that would be worth $2 trillion, more than the market capitalizations of JPMorgan, Visa, Goldman Sachs and BlackRock combined.

Though a Tether spokesperson affirmed that this is a net profit figure, whether it is directly comparable to Circle’s is unclear. More generally, Tether’s disclosure is not yet as detailed as a company that has successfully launched onto public markets.

Circle has also worked to hew to the guardrails in emergent stablecoin legislation, which require that tokens be backed by high-quality, liquid assets. Tether can probably get there: more than 80% of its reserves are held in ultra safe assets like Treasury bills and cash. Still, it may prevent an IPO any time soon, and the company has been dinged by regulators for accounting in the past. Crypto is not quite as straight-laced as traditional finance yet.

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CONTEXT NEWS

Shares of cryptocurrency firm Circle Internet Group began trading on June 5. After pricing at $31 in an initial public offering, they have soared since, opening at $132.72 on June 9.

The Wall Street Journal reported in November that investment bank Cantor Fitzgerald holds a convertible bond issued by rival crypto firm Tether, under which it stood to receive a 5% stake that it valued at $600 million.

(Editing by Jonathan Guilford; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on GANDEL/ stephen.gandel@thomsonreuters.com))