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Bitcoin’s volatility spawns new crypto balance sheet alternative

by BLOOMBERG

NEW YORK • Corporate treasurers fed up with rock-bottom returns on their cash are about to get another pitch from the world of crypto.

Circle Internet Financial Ltd, one of the digital-asset firms behind the so-called stablecoin dubbed USDC that is pegged 1-to-1 to the dollar, has cooked up an alternative for the legions too conservative to follow the likes of Elon Musk and Jack Dorsey into bitcoin. Park your extra cash in USDC and earn as much as 7% annually through high-yield accounts, the marketing says — more than 10 times the return on an ultrasafe one-year Treasury bill.

The idea may be appealing to some treasurers who were initially seduced by the big gains in crypto, especially following bitcoin’s roughly 40% decline since mid-April.

Stablecoins such as USDC are gaining increased attention because of their ability to maintain their pegs during the wild crypto price swings, suggesting they could actually serve as a store of value. Even so, not all long-term digital market observers are convinced.

“If companies wish to put their corporate reserves into a stablecoin and that is fully audited, it is like putting their money in a bank account which is what they normally do,” John Griffin, professor of finance at the University of Texas at Austin, said in an email.

“However, if the account is paying out a higher yield than bank account yields, then it is not merely invested in some risk-free asset.”

Here’s how Circle’s programme will work: Treasurers would open a “digital-dollar account” where the company’s fiat money is converted into USDC and interest is paid out in USDC. The yield is generated by Circle lending the digital dollars to a network of institutional investors that are willing to pay an interest rate for access to additional capital.

The companies would lock in their return when the account is opened, similar to a bank certificate of deposit. Circle plans to offer accounts with maturities ranging from one month to a year, with no early withdrawals allowed. Rates available will be updated on a weekly basis, depending on demand for USDC loans.

With few companies outside the crypto realm following MicroStrategy Inc, Tesla and Dorsey’s Square Inc into bitcoin, Circle hopes that stablecoins may be the next logical step. The company is working with Genesis Global Capital, one of the largest crypto lenders.

Zukri

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