Bitcoin’s volatility creates a new alternative to the crypto balance sheet


Circle Internet Financial Ltd., one of the digital asset companies behind the so-called USDC stablecoin which is pegged 1 to 1 to the dollar, has concocted an alternative to Legions too conservative to follow Elon Musk. and Jack Dorsey in Bitcoin. Put your extra money in USDC and earn up to 7% a year through high yield accounts, according to marketing – more than 10 times the yield of a super-safe 1-year treasury bill.

The idea may appeal to some treasurers who were initially won over by crypto’s big gains, especially after Bitcoin’s roughly 40% drop since mid-April. Stable coins such as the USDC are gaining more and more attention due to their ability to hold their pegs during wild swings in cryptocurrency prices, suggesting that they could in fact serve as a store of value. . Even so, not all long-term digital market watchers are convinced.

“If companies want to put their corporate reserves in a stable currency that is fully audited, it’s like putting their money in a bank account, which they normally do,” John Griffin, professor of finance at the University of Texas at Austin said in an email. “However, if the account is earning a higher return than the bank account, it is not simply invested in a risk-free asset.”

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Here’s how Circle’s program will work: Treasurers would open a “digital dollar account” where the company’s fiat currency is converted to USDC and interest is paid in USDC. The return is generated by Circle lending the digital dollars to a network of institutional investors willing to pay an interest rate to access additional capital.

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Companies lock their return when opening the account, such as a bank certificate of deposit. Circle plans to offer accounts with maturities ranging from one month to one year, with no early withdrawals allowed. The available rates will be updated on a weekly basis, depending on the demand for USDC loans.

It’s a bit more docile than the strategy first put forward last year by Michael Saylor, CEO of MicroStrategy Inc., who advocated pouring the company’s reserves into Bitcoin because he said that the dollar was degraded by soaring inflation. Musk’s announcement in February that Tesla Inc. had added Bitcoin to its balance sheet helped fuel the rally that took the largest cryptocurrency to a record high in April before losing more than a third of its value.

READ ALSO: Former high school classmates are among the world’s largest crypto holders

“Corporate reserves aren’t meant to invest in stocks, go to Vegas, or anything more volatile and rigged against you like Bitcoin,” Griffin said.

With few companies outside of crypto following MicroStrategy, Tesla, and Dorsey’s Square Inc. in Bitcoin, Circle is hoping that stablecoins might be the next logical step. The company works with Genesis Global Capital, one of the largest crypto lenders.

The service will first be made available in the United States and Switzerland, and will launch “shortly,” said Jeremy Allaire, CEO of Circle, in an interview. Thousands of businesses are already on the waiting list, according to Circle.

“We see the opportunity for the cash use case grow a lot,” Allaire said.

Other stable coin providers are rolling out similar offerings. On May 26, the Gemini exchange – the brainchild of the Winklevoss brothers – said investors could earn up to 7.4% per year on Gemini dollars through a program called Gemini Earn. The Gemini token is also pegged to the dollar and its reserves are held with State Street Bank and Trust, the world’s largest financial custodian. Each month, the dollar deposit balance is reviewed by BPM LLP, an independent registered accounting firm.

USDC reserves are verified monthly by the accounting firm Grant Thornton LLP and published online.

Various small crypto lenders already offer yield accounts for different coins, including less regulated stablecoins like Tether.

For these products, “the appropriate users would be people who invest in bad bonds or similar risky loans,” said Aaron Brown, a crypto investor and writer for Bloomberg Opinion. “It could offer a better risk-adjusted return than the alternatives. . . or not. But anyway, it’s not a savings account as most people understand it. “

By Olga Kharif

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