Circle Stock Drops 9.4% After Compass Point Neutral Rating

Circle, the issuer of the stablecoin USDC, experienced a 5.5% drop in its stock price early Tuesday following the initiation of coverage by Compass Point, an equity research firm. Compass Point assigned a neutral rating to Circle's shares, which trade under the ticker CRCL on the New York Stock Exchange, and set a price target of $205. The stock opened at $238.46, marking a 9.4% decrease from its previous closing price of $263.40. The stock has since struggled to recover to its Monday closing price.
Compass Point acknowledged that USDC's technology and liquidity provide long-term advantages but noted that Circle's distribution partners are currently limited to crypto players. Circle's primary distribution partner has been Coinbase, which co-founded USDC through the Centre Consortium in 2018. Coinbase receives 50% of the interest earned on the reserves backing the stablecoin. In December, Circle entered into a strategic partnership with Binance, Coinbase's largest competitor, to make USDC more widely available across Binance's suite of products and services. However, Circle has had to discontinue support for USDC on certain networks, such as Tron, due to risk management concerns. USDC also recognizes crypto exchanges Bybit, Bitget, and Bitstamp as on- and off-ramp providers.
Analysts Ed Engel and Joe Flynn from Compass Point noted that Circle's stock trading at over 100 times EBITDA suggests that investors are betting on the future growth of stablecoins rather than near-term earnings. They believe that stablecoins could penetrate approximately 10% of the U.S. M2 by 2030, implying a $2 trillion addressable market. USDC currently holds a 24% market share, and the analysts forecast a 20-30% longer-term share alongside new competition and a lower share from USDT. The progress of the GENIUS Act, which could establish a regulatory framework for U.S. dollar-backed stablecoins, is seen as both bullish and bearish for Circle. While it could provide regulatory clarity, it may also accelerate competition, reducing long-term market share expectations and pressuring Circle's shares in 2025.
Other observers have also expressed skepticism about Circle's short-term growth potential. James Toledano, the chief operating officer at Unity Wallet, has been cautious about Circle's upward momentum following its listing. He noted that despite a 750% post-IPO rally, USDC's market share has been declining, and Circle's revenue is heavily dependent on high interest rates. A change in the Federal Reserve's monetary policy could significantly impact Circle's income. USDC's market share has fluctuated, reaching nearly 34% of the stablecoin market in May 2022 and declining to approximately 27% in early 2025.

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