One sector in the crypto industry has been spared

Reporting on crypto in 2022 has felt like covering a train wreck—or, more accurately, a series of train wrecks with a new smash-up every week. The lending sector is decimated, exchanges are starving due to a lack of trading volume, and the once-promising metaverse has become a joke. It’s pain and carnage as far as the eye can see. With one exception.

That exception is the stablecoin business, which is riding high even amid the worst Crypto Winter in memory. A case in point is Circle, which disclosed on Monday that it is now profitable, with third-quarter earnings of $43 million, and that it is sitting on $400 million. (Circle is a sponsor of Fortune Crypto.) The company revealed the figures at the same time it announced it has terminated an arrangement to go public via a SPAC—a termination that would have spelled disaster had it occurred a year ago but is now no big deal.

Why the change in fortune? The answer, of course, is the Federal Reserve, which has jacked up interest rates and plans to keep doing so. For Circle and other stablecoin issuers, this has amounted to a windfall since they’re sitting on billions of dollars in reserve funds that can be invested in T-bills to earn interest—all while facing no expectations to pass on some of that wealth to customers. It’s one thing to run a stablecoin company when interest rates are below 1%, which they were for years, and quite another to operate when rates are 4% and climbing.

Meanwhile, if Congress goes forward with long-discussed plans to ease the regulatory burden on the crypto sector, stablecoin issuers are expected to be the first beneficiary—a development that would allow them to expand into new lines of corporate business while still mopping up the revenue from their reserve pools.

Stablecoin issuers are not the only ones benefiting from high interest rates. A recent essay by Andreessen Horowitz noted that the broader world of fintech is enjoying a tailwind thanks to the Fed. Firms like Robinhood are suddenly making money from “the float,” while neobanks can now dangle high interest rates to consumers while also making a profit themselves. There is opportunity everywhere at a time when big banks continue to offer their customers measly returns of 0.2% or less.

The broader point here is that the crypto industry is in a dark place and will be for some time, but there is also cause for optimism. Not everyone is getting battered and, with a bit of luck, the thriving stablecoin sector could be a jumping-off for a sector-wide recovery.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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