Coinbase acquiring Circle for $5B...isn't crazy.
Today, Coinbase is $66B marketcap, $2B in net income run rate, trades for 31.6x PE.
Circle at $5B marketcap, $155M in net income, trades for 32.1x PE
But with the GENIUS bill passing, USDC and stablecoins are only going to grow -- today USDC Stablecoin supply is ~$60B of marketcap and with 4.5% fed fund rate, USDC generates Circle $2.7B in top line.
If you believe:
1) Stablecoins are only going to grow as the global demand for dollars increase for merchants and consumers to pay for goods and services globally
2) There will only be a handful of stablecoin issuers in the end state (see Pareto Principle)
It's not hard to believe that the Stablecoin Marketcap will grow to AT LEAST $1-$2T in the next 3-5 years and USDC will maintain at least its share of 25% which translates to $250-$500B in the next 3-5 years.
YES interest rates are declining -- Circle makes 99% of revenue from reserve income which is a core concern as average 3 month T-bills have fallen from 5.28% in Q4'23 to 4.40% in Q4'24 and Kalshi prediction markets forecast 2 cuts in 2025.
But stablecoins are growing FASTER than interest rates are declining.
Even at 3% blended fed funds rate, on $250B of USDC stablecoin supply, that's still $7.5B of annualized revenue and assuming a 25-30% net income margin that Coinbase is able to maintain post acquisition, that's an additional ~$2B of net income and another ~$60B of marketcap for Coinbase.
Coinbase acquiring Circle would mean no more distribution costs and majority of reserve revenue goes to Coinbase.
Note, that we don't include the fact that Circle owns the #1 onchain bridge in CCTP that does $50B annualized bridge volume with minimal fees for CCTP v2.
Circle today primarily makes $ from reserve income and Coinbase makes 86% of revenue from taking bps on trading volume from consumer trading.
Circle + Coinbase could be the most institutional / well regulated exchange AND stablecoin issuer in the US and will continue to benefit from a pro-crypto / stablecoin regime over the next 3-5 years AND benefit from growing crypto trading volume and growing stablecoins.
In short, if you're bullish stablecoins and believe there will only be a handful of stablecoin issuers in the end state, Circle could generate $2B of net income in 3-5 years for Coinbase and at 32x PE, double Coinbase's marketcap of ~$66B by adding $60B of marketcap.
Today, Coinbase is $66B marketcap, $2B in net income run rate, trades for 31.6x PE.
Circle at $5B marketcap, $155M in net income, trades for 32.1x PE
But with the GENIUS bill passing, USDC and stablecoins are only going to grow -- today USDC Stablecoin supply is ~$60B of marketcap and with 4.5% fed fund rate, USDC generates Circle $2.7B in top line.
If you believe:
1) Stablecoins are only going to grow as the global demand for dollars increase for merchants and consumers to pay for goods and services globally
2) There will only be a handful of stablecoin issuers in the end state (see Pareto Principle)
It's not hard to believe that the Stablecoin Marketcap will grow to AT LEAST $1-$2T in the next 3-5 years and USDC will maintain at least its share of 25% which translates to $250-$500B in the next 3-5 years.
YES interest rates are declining -- Circle makes 99% of revenue from reserve income which is a core concern as average 3 month T-bills have fallen from 5.28% in Q4'23 to 4.40% in Q4'24 and Kalshi prediction markets forecast 2 cuts in 2025.
But stablecoins are growing FASTER than interest rates are declining.
Even at 3% blended fed funds rate, on $250B of USDC stablecoin supply, that's still $7.5B of annualized revenue and assuming a 25-30% net income margin that Coinbase is able to maintain post acquisition, that's an additional ~$2B of net income and another ~$60B of marketcap for Coinbase.
Coinbase acquiring Circle would mean no more distribution costs and majority of reserve revenue goes to Coinbase.
Note, that we don't include the fact that Circle owns the #1 onchain bridge in CCTP that does $50B annualized bridge volume with minimal fees for CCTP v2.
Circle today primarily makes $ from reserve income and Coinbase makes 86% of revenue from taking bps on trading volume from consumer trading.
Circle + Coinbase could be the most institutional / well regulated exchange AND stablecoin issuer in the US and will continue to benefit from a pro-crypto / stablecoin regime over the next 3-5 years AND benefit from growing crypto trading volume and growing stablecoins.
In short, if you're bullish stablecoins and believe there will only be a handful of stablecoin issuers in the end state, Circle could generate $2B of net income in 3-5 years for Coinbase and at 32x PE, double Coinbase's marketcap of ~$66B by adding $60B of marketcap.
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