Earlier this week Bloomberg reported that Ripple made a $4 – $5 billion bid for Circle, the issuer of the USDC stablecoin. Circle apparently rejected the offer as being too low. At the beginning of the month, Circle published the offer documents to list its stock on the New York Stock Exchange (NYSE).
Despite posting $1.67 billion in revenues in 2024, Circle earned just $156 million in profit, largely because it paid 60% of its revenues to distributors, particularly Coinbase. On the one hand, the Ripple bid makes tremendous sense from Ripple’s perspective. But it’s also logical for Circle to reject it.
The rationale for Ripple to acquire Circle Late last year Ripple launched the RLUSD stablecoin, which surpassed a market capitalization of $300 million during the past week. Circle’s USDC has an issuance of more than $61 billion. The challenge for Ripple is its desired target market for RLUSD overlaps with Circle’s USDC, which has an institutional bent.
Ripple is flush with cash So Circle fits Ripple from a product positioning perspective, plus Ripple is flush with cash. It is still the largest holder of the XRP cryptocurrency, which has more than quadrupled in price since the US elections, despite having dropped a third from its January peak. Today XRP is valued at $2.22 or $130 billion in total.
At the end of last year Ripple held 4.5 billion in XRP tokens outright, plus 38 billion tokens locked up in escrow. The outright XRP holdings are equivalent to $10 billion. However, it recently committed $1.25 billion to acquire prime broker Hidden Road, an active player in the FX markets.
If Ripple offloaded its 4.5 billion XRP over a short period, theoretically that should suppress the XRP price. That said, the XRP price is more driven by speculation than other cryptocurrencies, so it could go either way. Why is the XRP price described as speculative?
Because the current market capitalization of XRP is around 58% of Ethereum’s. If you use the fully diluted figure (including Ripple’s escrowed tokens), the total value of all XRP and Ethereum tokens are the same. Yet Ethereum’s daily active addresses are around 465,000, or twenty times more than the roughly 23,000 for XRP.
That’s without considering the vastly different numbers of Ethereum developers and every other metric. So for Ripple, it’s a great time to spend XRP. But any acquisition target that has to hold on to XRP for any period of time might worry about the sustainability of the token’s price.
Normally you should see a Tripetto form over here, but it needs JavaScript to run properly and it seems that is disabled in your browser. Please enable JavaScript to see and use the form. Circle and Ripple are targeting the same segment Coming back to targeting the same segment, Circle’s institutional positioning is underlined by partnering with BlackRock to manage its reserves, as well as BlackRock investing in the firm.
Plus, BNY provides custody for its reserves and manages of its cash. Recently there’s been talk of using stablecoins as margin for listed derivatives. The Commodity Futures Trading Commission (CFTC) recently announced pilots for tokenized collateral which would include stablecoins.
USDC and PayPal’s PYUSD are usually the coins of choice. But this is where Ripple wants to participate, but is a late joiner. Ripple, as a company, has always positioned itself in the enterprise and institutional payments space.
In its early days, several banks used a private version of its XRP Ledger as a superior messaging system for cross border payments. However, few banks used XRP for payments, although the confusion and conflation didn’t do XRP’s price any harm. Ripple doubled down on its institutional play by acquiring custody technology firm Metaco for $250 million, which serves many major banks.
It’s also worked with some emerging market governments on central bank digital currencies. Why Circle wouldn’t be interested in $4 – $5 billion Circle is planning an IPO which is likely to value the company at around this price, after cumulative funding rounds totaling $1.5 billion. Post IPO, the founders will still hold some stock, which they will expect it to be worth far more in the future.
The prospectus states that the CEO Jeremy Allaire and another co-founder will have Class B shares with five times the Class A share votes, that could represent up to 30% of total votes. Allaire is not a rookie CEO, nor is this his first IPO. Allaire Corporation conducted an IPO in 1999 and was acquired by Macromedia in 2001, with Mr Allaire staying on for a couple of years as CTO.
This experience combined with the share voting structure shows that the IPO is not an exit for Mr Allaire. It’s the opportunity to build a major market infrastructure. So exiting to Ripple at the current IPO valuation wouldn’t be particularly appealing.
That’s especially if it involved any lockup of XRP at the current high price level. Circle’s winding road to success This is underlined by Circle’s winding road to success. Many startups from the outside look like instant hits, even though few are.
Circle had multiple expensive pivots before finding product market fit. It started offering a user friendly wallet app, Circle Pay, that supported bitcoin and fiat currencies, including bitcoin as an intermediate currency for cross border payments. Subsequently, it spent $400 million acquiring the Poloniex crypto exchange, which it offloaded a few years later in another pivot.
Even USDC was not a quick hit. It was launched in 2018 and took almost two years to reach a billion in market capitalization. The decentralized finance (DeFi) boom that started in the second half of 2020 put USDC on the map.
Given all that effort, to persuade Mr Allaire to part with Circle would likely take a lot more than a $5 billion price tag. The challenge for Ripple is it only has about $8.5 billion, and selling so much XRP in one go risks destabilizing the token’s price. Plus, forcing Circle stockholders to retain XRP compensation would be tricky at current XRP price levels.
Nonetheless, it’s a logical plan for Ripple.
