Emerging companies with little revenue love to boast about their “total addressable markets”. As TAMs go, the $20tn global “M2” money supply is about as ambitious as it gets. Bob Diamond has lost none of his ambition.
The former Barclays head has struck a deal for Circle, the company behind digital currency USD Coin, to merge with his New York-listed blank cheque company at an enterprise value of $4.5bn. The thesis is that digital coins can do for financial services what the internet did for data. USDC and affiliated services then only have to steward a fraction of all the money out there to prosper.
Investors will ponder the length of those odds. Not only must digital money go mainstream. Circle must emerge as a winner too. Diamond has had some success with his Atlas Merchant US buyout venture. His Atlas Mara African banking consolidation vehicle has been a bit of a flop.
USDC is a so-called stablecoin. Circle account holders exchange dollars for the currency and can redeem 1:1 when they like. Some critics worry about the safety of stablecoins in the event of mass redemptions, an anxiety the first paper money also inspired.
One source of revenue for Circle is interest on the dollars. The lion’s share would come from financial plumbing for institutions transacting in digital currencies.
Circle says by 2023 it will have more than 30,000 accounts, up 10-fold on where it expects to be at the end of this year. Revenue similarly is supposed to jump from $100m to $900m.
Profitability is scant. Even in two years, operating income will still be under $100m. Circle believes it can eventually hit a 35 per cent ebitda margin. Naturally the business says the stretched valuation based on forecast 2023 revenue is modest.
As with most blank cheque targets, Circle is asking the investor to trust that market adoption of a nascent technology will occur smoothly. Far greater uncertainties apply, however, than those involved in estimating the money supply.
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