'Prop firms are hard to sell:' Shares for crypto exchange Circle are being offered at a massive discount

Count this as a potential sign that the crypto bear market is putting pressures on some of the best-known companies in the market for digital currencies.

Private shares of Circle, the cryptocurrency exchange-operator, are being offered at a massive discount on SharesPost, a platform that allows accredited investors to exchange shares of private companies. At the time of its Series E fundraise in May, shares of Circle were worth $16.23 apiece at a valuation of $3.01 billion, but now shares are available to be purchased at just $3.80. To be sure, it is not clear how many shares are being offered at this new price, nor is it clear if any shares have exchanged on the platform at this price. This share price implies a $705M valuation.

Still, it does indicate that some shareholders in Circle view the firm as less valuable. "[I] reckon it's a combination of liquidity discount applied to private companies + crypto bear market + Circle getting absolutely killed on write down of acquisitions + bear market volumes," one U.K.-based crypto hedge funder said. In 2018, Circle acquired crypto exchange Poloniex, which has seen its trading volumes collapse since it was scooped up by the firm. Today, it sees less than $7 million worth of crypto trade hands each day. Meanwhile, Binance sees approximately $520M in 24-hour trading volumes, whereas Coinbase Pro sees $37M in daily trading volumes.

Circle's over-the-counter trading business, Circle Trade, however, has stood out as a strong business amid the ongoing crypto bear market, facilitating $24 billion in notional trading volume in 2018, according to a letter penned by its CEOs, Jeremy Allaire and Sean Neville.

"At the other end of the spectrum, our OTC trading business, Circle Trade, has continued to expand despite a tumultuous year for the industry: we onboarded a record number of new institutional clients (more on that below), grew our trading operations to 24/7 with coverage in the US, Europe and Asia, and added significant workflow improvements, including the launch of our RFQ Electronic API," the executives said. 

The news was surprising to some market observers. "Doesn't make sense at all. They have mentioned staggering volumes growth," an executive at a rival exchange told The Block. Still, the fact that Circle is so reliant on its market making business makes it a much harder business to value, another crypto exchange executive said. "Circle Trade is the biggest profit earner — could be the majority of profits," the person said. "The OTC space is generally getting more competitive, margins are down," he added.

"Prop firms are hard to sell," he said. "Hard to value with the same kind of multiples as, say, a tech business or an exchange."

A spokesman at Circle declined to comment.