Circle Stock Surges 250% Amid Stablecoin Bill Approval

Circle Internet Group Inc (NYSE: CRCL) has experienced a significant uptrend since its debut on June 5th. The company's share price is heavily influenced by the performance of its stablecoin, USDC, which currently holds a valuation exceeding $60 billion. However, the adoption rate of USDC, particularly when compared to the market leader Tether, has not been impressive since its launch. This discrepancy raises concerns about the risks associated with owning Circle stock at its current levels.

The recent surge in CRCL shares can be attributed to the US Senate's approval of a landmark bill that paves the way for the mainstream adoption of stablecoins. Nevertheless, USDC's current market capitalization appears disproportionately high relative to its actual adoption. While Circle emphasizes transparency and regulatory compliance, USDC is not as deeply integrated into the global crypto infrastructure as Tether. According to Protos, Tether's aggressive reserve strategy and broader risk appetite enabled it to record $13 billion in profits last year, compared to Circle's $156 million. This translates to an 8,000% gap in profits, suggesting that USDC's market cap of approximately $62 billion, versus over $160 billion for Tether, may be overvalued.

Another factor contributing to the unattractiveness of CRCL shares at current levels is the significant institutional backing that has propped up USDC's growth. BlackRock manages 90% of its reserves, and prior to Circle's IPO, it was reported that the world's largest asset manager planned to take a 10% stake in the offering. While this institutional alignment lends credibility, it also concentrates risk. A shift in sentiment or regulatory changes could lead to a sharp contraction in USDC's value. Additionally, the Federal Reserve's recent signal of two rate cuts for the latter half of 2025 could pose a headwind for Circle's stock price, given the firm's financials are strongly tied to interest rates.

Circle's stock price has seen an unprecedented 250% increase in less than three weeks, which requires USDC to achieve incredible global adoption rates to justify this valuation. However, the entry of giants like Amazon and Walmart Inc into the stablecoin market with their own offerings could significantly impact USDC's prospects. If USDC's adoption does not scale to match its valuation, it could face redemption pressure in a market downturn, leading to a sharp decline in CRCL's share price in the second half of this year. This concern is reflected in famed investor Cathie Wood's recent decision to trim her exposure to Circle stock.