Reporting on crypto in 2022 has felt like protecting a practice wreck—or, extra precisely, a collection of practice wrecks with a brand new smash-up each week. The lending sector is decimated, exchanges are ravenous resulting from a scarcity of buying and selling quantity, and the once-promising metaverse has turn into a joke. It’s ache and carnage so far as the attention can see. With one exception.
That exception is the stablecoin enterprise, which is driving excessive even amid the worst Crypto Winter in reminiscence. A living proof is Circle, which disclosed on Monday that it’s now worthwhile, with third-quarter earnings of $43 million, and that it’s sitting on $400 million. (Circle is a sponsor of Fortune Crypto.) The corporate revealed the figures on the identical time it introduced it has terminated an association to go public by way of a SPAC—a termination that may have spelled catastrophe had it occurred a yr in the past however is now no massive deal.
Why the change in fortune? The reply, after all, is the Federal Reserve, which has jacked up rates of interest and plans to maintain doing so. For Circle and different stablecoin issuers, this has amounted to a windfall since they’re sitting on billions of {dollars} in reserve funds that may be invested in T-bills to earn curiosity—all whereas going through no expectations to go on a few of that wealth to clients. It’s one factor to run a stablecoin firm when rates of interest are beneath 1%, which they have been for years, and fairly one other to function when charges are 4% and climbing.
In the meantime, if Congress goes ahead with long-discussed plans to ease the regulatory burden on the crypto sector, stablecoin issuers are anticipated to be the primary beneficiary—a improvement that may permit them to increase into new traces of company enterprise whereas nonetheless mopping up the income from their reserve swimming pools.
Stablecoin issuers usually are not the one ones benefiting from excessive rates of interest. A latest essay by Andreessen Horowitz famous that the broader world of fintech is having fun with a tailwind because of the Fed. Corporations like Robinhood are immediately getting cash from “the float,” whereas neobanks can now dangle excessive rates of interest to customers whereas additionally making a revenue themselves. There’s alternative all over the place at a time when massive banks proceed to supply their clients measly returns of 0.2% or much less.
The broader level right here is that the crypto trade is in a darkish place and might be for a while, however there’s additionally trigger for optimism. Not everyone seems to be getting battered and, expectantly, the thriving stablecoin sector might be a jumping-off for a sector-wide restoration.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
DECENTRALIZED NEWS
Dogecoin has soared 40% within the final 10 days, which seems like excellent news aside from the very fact DOGE value spikes have sometimes preceded broader market crashes. (Coindesk)
The legendary designer behind Apple’s iPhone and iPod has constructed a slick crypto {hardware} pockets for Ledger. (Fortune)
A failing FTX sought to prop itself up with assist from its sister hedge fund, however the collateral it obtained was within the type of 4 illiquid shitcoins that Sam Bankman-Fried had as soon as marked as much as $175 billion. (WSJ)
Bitcoin dominance—Bitcoin’s share of the full crypto market—sometimes ticks up amid turmoil, nevertheless it hasn’t within the wake of FTX, main one analyst to invest some merchants have merely give up crypto altogether. (Bloomberg)
The Federal Commerce Fee is investigating a number of crypto companies over allegations they’ve violated fact in promoting legal guidelines. (PYMNTS)
MEME O’ THE MOMENT
Crypto fans respond to the SEC Chair’s latest tweet:
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