Circle, the company behind the stablecoin USDC, saw its stock price fall recently, even though their latest numbers looked pretty good on the surface. Let’s break down why.
Slower Growth Than Expected
While USDC’s supply jumped 90% in the past year to a whopping $61.3 billion, and Circle’s revenue soared 53% to $658 million, analysts at Mizuho Securities aren’t entirely thrilled. The problem? USDC’s growth is slowing down. Circle predicted much faster growth, and the reality is falling short.
Rising Costs and Increased Competition
One major concern is Circle’s rising costs. The money spent on getting USDC out there has skyrocketed from 39% of their reserve pool in 2022 to a whopping 61% in 2024 (and even 64% in the second quarter!). This eats into profits, especially with slower growth.
Things are also getting more competitive. New laws might make it easier for other companies to create their own stablecoins, and even Tether, a major competitor, is reportedly eyeing a return to the US market. This increased competition could put a squeeze on Circle.
Interest Rates Play a Big Role
Circle’s profits are also tied to US interest rates. With inflation cooling slightly, there’s talk the Federal Reserve might lower rates soon. Lower rates would mean less profit for Circle, as they earn interest on their reserves.
What the Analysts Say
Mizuho’s analysts predict Circle’s earnings will be lower than many expect. They’ve set a price target of $84 per share, but their worst-case scenario, assuming slower USDC growth and lower interest rates, puts the price as low as $40 per share.
The Bottom Line
Circle is still a big player in the stablecoin game, but it faces some serious challenges. Managing costs, dealing with increased competition, and adapting to interest rate changes will be key to its future success. The next few quarters will be crucial in determining whether Circle can overcome these hurdles.