Could Terra's Stablecoin Struggles Affect The Circle SPAC Deal And Valuation?

Stablecoins have dominated the headlines in the world of cryptocurrency this week with the crash of several coins. The downward moves and negative connotations building for stablecoins could spell trouble for a SPAC deal that involves a leading stablecoin company.

What Happened: A SPAC deal could face hurdles getting approved given the current climate on stablecoins. Circle announced a SPAC merger with Concord Acquisition Corp CND back in July 2021 and has yet to file a merger vote date.

Circle helped launch the USD Coin USDC/USD, a stablecoin, with partner Coinbase Global Inc COIN in 2018.

From Jan. 1, 2021 to Dec. 31, 2021, USDC had more than $1.39 trillion in transaction volume. At the end of 2021, there was $42 billion USDC in circulation.

The fast growth of USDC led to Circle and Concord Acquisition re-negotiating the terms of their merger and doubling the valuation of the company from $4.5 billion to $9 billion.

“Circle’s rapid growth and world-class leadership are underscored by a regulatory-first mindset fixed on building trust and transparency in global markets,” Concord Acquisition Chairman Bob Diamond said. “We believe our new deal is attractive because it preserves the ability of Concord’s public stakeholders to participate in a transaction with the great company.”

USDC circulation was $52.5 billion as of Feb. 16, 2022, the last figure given from the updated deal.

Related Link: USD Coin Founder Circle Doubles Valuation Ahead Of SPAC Merger 

Why It’s Important: Along with being the major supporter of USDC, Circle owned $250.4 million in digital assets at the end of 2021, including $193 million of Bitcoin BTC/USD.

The price of cryptocurrencies has come down significantly since the end of 2021 and the environment for stablecoins is one of negative connotations.

USDC is pegged to the value of the U.S. dollar, which could make it more stable in theory versus the cryptocurrencies of Terra LUNA/USD and TerraUSD UST/USD, which were connected to each other and have both crashed significantly over the last month.

Unlike other cryptocurrencies, the USD Coin is audited by a third party that ensures every token is backed by $1 of collateral held in reserves.

The crash of Terra has led to calls for the regulation of stablecoins.

“I think that this simply illustrates that there is a rapidly growing product and there are rapidly growing risks,” Treasury Secretary Janet Yellen said of TerraUSD. “Digital assets may present risks to the financial system and increased and coordinated regulatory attention is necessary.”

Yellen called for Congress to pass stablecoin legislation by the end of the year.

An increased push for regulation and the loss of value of cryptocurrencies could lead to questions on the timeline of the merger, which had an increased valuation assigned when cryptocurrencies were still in a bull market.

The current deadline date is Dec. 8, 2022, for the Circle merger to be approved, with the potential to extend the date.

While USDC is audited and backed to the U.S. Dollar, crypto-related SPAC mergers have faced longer timelines to close and the nature of stablecoins being involved could make this deal a long way out.

Photo: Luckymane via Shutterstock