Circle Stock Plummets Following Neutral Rating, Fears Around USDC Market Share Loss
Circle Inc. (ticker: CRCL) experienced a significant stock decline following research initiation from Compass Point and amid concerns over competition for its US Dollar Coin (USDC) stablecoin.
Immediate Impact
- Shares dropped 6% on Tuesday, briefly trading as low as $238.46. This followed Monday’s closing price of $263.40.
- Compass Point Research initiated coverage with a Neutral rating and a $205 price target.
Analyst Perspective
Circle’s stock trades at a valuation exceeding 100 times EBITDA, according to analysts at Compass Point.
“This high multiple reflects investor bets on long-term stablecoin growth rather than near-term earnings,” the analysts noted. “Justifying CRCL’s valuation requires bullish forecasts on the Total Addressable Market and market share for USDC.”
However, analysts pointed out limitations seen as external factors:
- Circle is primarily limited to crypto firms as distribution partners, as highlighted by its long but niche-focused partner list.
- Its partner relationships, while strategic (e.g., Binance), have required pulling support from other networks (“risk management” concerns).
- Market dynamics, including potential post-legislation growth and the impact of Federal Reserve policies tightening liquidity, could pressure future revenue.
Market Dynamics & Valuation Puzzle
The unfolding story of the CRCL stock valuation also highlights the evolving landscape for stablecoins.
USDC, Circle’s flagship stablecoin, saw its market share decline from 34% in mid-2022 to roughly 27% recently, according to CoinGecko data.
“The progress of the GENIUS Act in D.C., which aims to regulate US dollar-backed stablecoins, is bullish in fostering competition but bearish for Circle’s long-term share expectations,” Compass Point analysts wrote. “This new competition could sharply pressure CRCL’s share price.”
Circle acknowledged entering a strategic partnership with Binance but still faces hurdles. James Toledano from Unity Wallet expressed caution:
Despite a post-IPO rally, USDC’s market share has been declining, and Circle’s revenue depends heavily on high interest rates. A Fed pivot could sharply undercut its income.
Beyond the Ticker
While Compass Point provided a valuation target of $205, the underlying narrative emphasizes:
- Extremely high valuation multiples and risks surrounding near-term earnings.
- Competition concerns potentially eroding market share despite partnerships.
- Potential liquidity pressures from potential Federal Reserve policy pivots.
