It’s rough going out there for special purpose acquisition companies (SPACs). Atop plummeting investor sentiment over SPACs themselves, regulators are starting to scrutinize the fad and look into cracking down. Circle is in even worse shape than other SPAC mergers, however. Specifically, the Circle SPAC has been complicated by an ongoing crypto winter as well as other bearish factors. Now, Circle and its partner are deciding to abandon the venture.
Circle is a force within the crypto market. The company creates, distributes and controls USD Coin (USDC-USD). USDC is the second-largest stablecoin in the world by market capitalization, trailing Tether (USDT-USD). As with other stablecoins, USDC is popularly used as a proxy to fiat for buying and selling other cryptos on DeFi exchanges. It is also popularly used in crypto loan services. In addition to offering these services, Circle has been popular for its full transparency regarding its reserves. The company’s attestation reports have pressured projects like Tether to use higher quality asset reserves.
Like its competitors, USDC has boomed massively alongside accelerated crypto adoption since 2020. This led to the company joining forces with Concord Acquisition (NYSE:CND) in July 2021. The agreement came just months after Coinbase’s (NASDAQ:COIN) initial public offering (IPO) — a high point for investor sentiment toward cryptocurrency. The Circle-Concord partnership lined the company with $1.1 billion in capital and did well to elevate the project’s visibility outside of the crypto world.
Times have changed, though. Now, Circle is leashed to a lagging crypto market. Couple that with the downturn in attitude toward SPACs far and wide and the news that Circle is canning its go-public plan starts to make sense.
Circle SPAC Plans Dissolve Amid Crypto Winter
The Circle SPAC plan is a perfect snapshot of where investing was at in 2021. Cryptos were soaring in popularity, as were SPACs. At the time, it seemed like a match made in heaven — and enabled by the Federal Reserve’s lax policies. However, the deal marinated for too long; with crypto winter in full effect and SPACs falling in popularity, both parties are walking away.
Circle and Concord Acquisition released a joint statement Monday morning confirming the termination of the plan. The deal, if it had gone through, would have valued Circle at $9 billion. While the news is certain to disappoint crypto fans and Circle investors alike, the company reiterates that becoming a public company is a central priority to its mission.
It’s unsurprising to see this news, especially given the shape of the market. Crypto has been facing a steep decline in the wake of the Fed’s rising rates and inflation killing off much of the speculative investing that allowed it to thrive last year. FTX’s collapse in November is keeping this bearish sentiment going as well, ruining investor trust in centralized crypto companies and products.
Moreover, SPACs have also had a rough time over the past year. While crypto is hampered by the Fed, so too are SPAC mergers. This method of taking a company public once thrived for the same reasons the crypto market did.
As such, Fed policies have also rocked SPACs. Investors now have little trust in the success of these speculative investments, especially as even the largest companies on Wall Street struggle to remain profitable. Moreover, investigations have suggested several regulatory issues with SPACs which lawmakers are pushing to sew up. This scrutiny is scaring off institutions from supporting these mergers as well.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
