Here’s Why Circle’s Strong IPO Doesn’t Eliminate a Possible Ripple Deal

New research indicates that despite Circle's strong entry into the stock market, there is still potential for Ripple to pursue an acquisition. Circle’s recent IPO on June 5 made a significant impact on the public market, with its stock price soaring 167% during its debut on the New York Stock Exchange (NYSE). While rumors surrounding a Ripple acquisition have persisted, it remains unclear whether the blockchain payment firm will move forward with a purchase. Circle’s IPO and Financial Challenges Although Circle’s IPO marks a milestone, the company faces considerable financial hurdles. A recent Presto Research report highlights that Circle’s distribution costs account for 60% of its revenue, which significantly impacts its profit margins.

Unlike Coinbase, Circle’s revenue model is more dependent on stock and is sensitive to fluctuations in interest rates. This differs from a more traditional crypto exchange model and may make Circle a less attractive investment for those betting on the growth of stablecoin adoption. Meanwhile, Circle’s S-1 filing revealed that it had previously explored merger and acquisition (M&A) opportunities with both Coinbase and Ripple. However, those talks did not follow through due to disagreements over pricing. Presto Research suggests that the public market’s price discovery process could narrow these differences and potentially revive M&A discussions.  Additionally, Circle’s shift towards traditional finance could attract other potential buyers, particularly as major financial institutions explore the issuance of their own stablecoins.  Ripple’s Position on Acquisition Rumors Recall that Ripple CEO Brad Garlinghouse recently addressed speculation surrounding the acquisition of Circle at the XRP Las Vegas conference. He denied the claim that Ripple offered $10 to $20 billion for Circle.  Garlinghouse's comments confirmed that while Ripple may have engaged in acquisition discussions, no offer of that magnitude was made. The CEO also pointed out that he is "unable to pre-announce" any potential acquisition plans. Despite these denials, Circle has also rejected any claims regarding plans to sell itself to Ripple. The company’s spokesperson reiterated that Circle remains focused on achieving its long-term goals and has not pursued any acquisition deals, but this spokesperson remains anonymous.  Analyst Views on Potential Acquisition Amid these developments, some analysts believe Circle could be a valuable acquisition target for major players in the industry. Chamath Palihapitiya, a prominent investor, recently suggested that buying Circle for $12 to $13 billion would be a bargain, considering the company's infrastructure and its potential value in the coming years.  https://twitter.com/chamath/status/1930417399368691860 With Circle’s IPO being 25 times oversubscribed, Palihapitiya views the stablecoin issuer’s assets as highly undervalued. He believes that companies like Ripple, Coinbase, and others in the fintech space may compete for dominance in the stablecoin market, making Circle an attractive acquisition target.  However, there are no confirmed reports that Coinbase is pursuing such a deal, although rumors suggest ongoing discussions.