History was once again made on Wall Street in June. Not only because the S&P 500 reached a new record high, but also because of the IPO of Circle Internet. Even if this name is not immediately familiar to everyone, it marked the debut of none other than the first major stablecoin issuer. The company is best known for issuing the "USD Coin" (USDC) and caused a stir in the financial world with an initial valuation of around USD 6.8 billion, the largest crypto listing since Coinbase's IPO in 2021. And the excitement continued to grow: compared to the issue price of USD 31 per share, the initial price of USD 69 was already more than twice as high. But that was by no means the peak: at its peak, USD 223.64 was paid for a share, more than seven times the starting price.
Circle is a blockchain infrastructure company that specializes in stablecoins. Stablecoins are digital currencies that are linked to the value of a traditional asset - in this case the US dollar - to ensure a stable price trend. Circle's USDC is fully backed by USD reserves. The stablecoin is used in a variety of applications, including crypto trading, payment transactions and decentralized finance (DeFi). The New York-based company recently made headlines with a strategic partnership with the renowned fintech Fiserv. This aims to link Circle's USDC platform with Fiserv's digital banking and payment expertise in order to offer stablecoin-based solutions.
Circle is one of the few opportunities for public investors to get involved in the blockchain infrastructure space and we believe stablecoins are on the verge of a major inflection point," said Barclays analysts in an initial assessment of the exchange newcomer. The company recently reached a milestone in mid-June with a landmark vote in the US Senate. This approved the regulation of stablecoins. With the so-called Genius Act, a law was created that enables banks, payment service providers and large retailers such as Amazon to use the digital asset for payments. This is the first time a framework has been created for a rapidly developing financial product," explains Andrew Olmem, partner at the law firm Mayer Brown. This regulatory framework also strengthens Circle's position, as the company now benefits from a more stable regulatory environment and the resulting increase in confidence.
Within the crypto universe, stablecoins have so far only made up a comparatively small part. The two largest representatives, Tether and USDC, have a combined market capitalization of just under USD 220 billion, compared to USD 3.3 trillion for all digital currencies. However, stablecoins have become much more popular in recent years. Tether's market capitalization has increased by 40% in the past 12 months, while Circle's USD Coin has almost doubled its market capitalization in the same period. In the ranking of the largest cyber currencies, Tether and USDC are in 3rd and 7th place respectively.
Despite these developments, Circle's valuation is a double-edged sword. Although the company undoubtedly has a strong market position, analysts are divided on its further potential after the share's harem ride on Wall Street in the first few weeks. J.P. Morgan started its coverage with an "underweight" rating and a price target of just USD 80, which would be more than half the current level. Barclays, on the other hand, has given the newcomer an "overweight" rating with a fair value of USD 215.
The different assessments reflect the uncertainty associated with the valuation of companies in the cyber currency sector. The volatility of the crypto market - which is significantly lower for stablecoins - and future regulatory developments can also influence long-term growth prospects. With the new Barrier Reverse Convertibles, investors are choosing a conservative way of adding the first stablecoin issuer with attractive profit opportunities to their portfolio. With these products, double-digit percentage returns are possible despite a significantly lower risk profile compared to a direct investment. The CHF-denominated product offers an attractive interest rate of 18.80% p.a., while the USD variant even offers an above-average potential return of 24.60% p.a. In both cases, the coupons are subject to a condition. In contrast to the classic variant, the Circle share must be quoted above the coupon trigger level of 50% of the initial level on the quarterly observation dates. If the coupon payment is not made on a key date, it is not lost at the same time. Due to the memory mechanism, the payment can be made up for if Circle is quoted above the coupon trigger level again on one of the following observation dates.
The barrier is a comfortable 50% of the starting value. This threshold is important in order to get the nominal back in full at the end of the term. Speaking of the end of the term: As a European barrier was chosen, this is only active at the final fixing and allows the underlying to run free until then. The term can be shortened due to the built-in soft callable function. Every three months, but at the earliest after six months, the issuer has the right to early redemption at 100% for both BRCs.
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