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When the U.S. Federal Reserve raised interest rates last week, it gave a hand up to Circle Internet Financial, a young crypto firm that issues what it calls a USD Coin (USDC), a stablecoin the value of which is pegged to the U.S. dollar.
Circle transforms investors’ dollars into USDCs, which it invests in cash and short-term government securities.
The company currently manages about $53 billion in USDC, about the same size portfolio as a mid-size bank, The Wall Street Journal noted.
Like a bank, Circle earns interest on its holdings. When interest rates rise, so does Circle’s income.
Thanks to the Fed’s rate rise, Circle will earn an extra $2.3 billion over the next two years, based on the company’s growth projections, it said.
Circle does not pay interest to its investors, who are gambling on the rise or fall of USDC’s market value. As a result, a significant share of the higher interest coming to Circle will pad its bottom line.
Circle lost $179 million in 2019, due to its sale of Poloniex, a troubled crypto exchange it had acquired that then ran afoul of regulators for doing business in Iran, North Korea, and other U.S.-sanctioned nations.
At the end of last year, only about $520 million of USDCs were in circulation.
Now Circle is planning to merge with Concord Acquisition Corp., a special-purpose acquisition company (SPAC) in a deal that will value the coin company at about $9 billion, according to the FT.
Circle hired Financial Technology Partners (FTP) last year to help it raise money.
At current values, FTP says it will earn about $800 million when the SPAC deal takes place.