Circle Internet (CRCL): The GENIUS Act's Hidden Risks and Why the Rally May Falter

The U.S. Senate's bipartisan approval of the GENIUS Act has positioned Circle (CRCL) as a potential pioneer in the regulated stablecoin era. Yet beneath the legislative optimism lies a stark reality: Circle's valuation is built on fragile assumptions about interest rates, regulatory certainty, and USDC's market dominance. While the stock has surged on "buy the rumor" momentum, investors must confront the risks of an overvalued company facing headwinds from both macroeconomic and competitive pressures.

Valuation Overreach: A 32x Multiple Built on Sand

Circle's market cap of $58 billion contrasts sharply with its $1.7 billion in 2024 revenue, implying a 15x forward revenue multiple (or a trailing 32x based on 2024 results). This premium assumes exponential USDC adoption and sustained high interest rates—two assumptions now under threat.

• Interest Rate Sensitivity: 99% of Circle's revenue comes from interest earned on the $60 billion backing USDC. Each 0.25% cut in rates could slash earnings by 10%, a vulnerability as the Federal Reserve hints at a pause—or even easing—to stabilize growth.
• Coinbase Dependency: A 50% revenue share with Coinbase exposes Circle to its partner's volatility. When Coinbase's stock rose 10% in late June, Circle's fell 25%, underscoring its reliance on a single counterparty.

This data underscores the disconnect between Circle's valuation and its revenue growth. The P/S ratio of ~24x (as of June 2025) far exceeds industry norms, suggesting investors are pricing in a flawless regulatory outcome and no competition.

Regulatory Uncertainty: The House's Power to Derail the Rally

While the Senate's approval is historic, the House's STABLE Act poses serious risks:
1. Yield Restrictions: Prohibitions on interest-bearing stablecoins could eliminate Circle's ability to monetize USDC wallets, a key growth lever.
2. Foreign Issuer Scrutiny: Stricter rules on foreign stablecoins could slow USDC's global adoption, especially in markets where Tether (USDT) dominates.
3. Moratoriums: A potential freeze on new stablecoin innovations could stall Circle's expansion plans.

The House's willingness to tie the bill to broader "market structure" reforms—such as tech antitrust measures—adds further uncertainty. If the bill is delayed or amended, the "GENIUS Act rally" could reverse abruptly.

Saturation Risks: USDC's Struggle Against Tether and New Entrants

Even if the legislation passes smoothly, USDC faces a "winner-takes-most" market dominated by Tether's $152 billion market cap (45% share vs. USDC's 27%). Competitors like JPMorgan's JPM Coin, PayPal's PYUSD, and high-yield alternatives like USDe (24.5% staking returns) are eroding USDC's growth runway.

• Trading Volume: While USDC's monthly volume hit a record $219 billion in April 2025, Tether's volume dropped 49% since late 2023—not because USDC is winning, but because crypto trading pairs are shrinking overall.
• Regulatory Arbitrage: The EU's MiCA compliance boosted USDC's institutional appeal, but Tether's $14 billion in 2024 profits (vs. Circle's $155 million) highlights its liquidity and yield advantages.

The "Buy the Rumor" Trap

Circle's stock has already rallied on the Senate's approval—a classic case of pricing in the best-case scenario. Investors are betting on:
- A smooth House passage without amendments.
- A Fed rate hike (unlikely given 2025's economic softness).
- USDC overtaking Tether in a crowded market.

If any of these assumptions fail—say, the House strips yield-bearing provisions or rates fall—the 32x revenue multiple becomes unsustainable. The "rally" could unravel, leaving investors holding an overvalued bet on a niche product.

Investment Advice: Wait for Clarity, Not Hype

While Circle's mission to digitize money is compelling, its stock is a high-risk gamble on legislative luck and macroeconomic tailwinds. Until three conditions are met, caution is warranted:
1. House Approval: The STABLE Act must pass without provisions that restrict USDC's business model.
2. Rate Stability: The Fed must avoid cuts that erode Circle's interest-driven revenue.
3. USDC Market Share Growth: USDC must exceed 35% market share by year-end—a stretch goal given Tether's entrenched dominance.

For now, wait on the sidelines. The GENIUS Act's passage has been priced in; the next move hinges on execution, not legislation.

Final Take: Circle's valuation reflects a "hope premium," not a sustainable moat. Until the House acts—and the market tests USDC's mettle—this rally is more about belief than reality.