Circle stock price analysis: can CRCL crash to $100?

Circle stock price has crashed and erased about 50% of its value in the past few weeks as the momentum waned and valuation concerns remained. CRCL plunged to a low of $136.80, its lowest swing since June 13.

Circle Internet is growing, but risks remain

Circle Internet is one of the biggest companies in the crypto industry, operating USDC, the second-biggest stablecoin whose supply has jumped to over $68 billion.

As a stablecoin issuer, the company operates a relatively simple business model. It operates in a relatively similar way to how banks run, where it receives customer deposits and invests it. The customer can redeem the USDC stablecoins for cash at any time.

The only difference between Circle and how banks operate is that it is limited to how it invests its reserves. Banks can lend customer deposits to companies or customers.

The recently passed GENIUS Act places limits to how stablecoin issuers operate and who they lend money. They can only invest in short-term US bonds, which are now yielding over 4%.

The most recent results showed that the amount of Circle’s stablecoins in circulation jumped by 90% in the last 12 months to $61.3 billion.

The strong stablecoin growth, together with the high interest rates by the Federal Reserve, pushed its revenue up by 50% to $658 million. Its other revenue rose to $24 million, up sharply from $7 million in the same period last year.

However, the company’s bottom line was not good as its loss jumped to $482 million, up from a profit of $33 million in the same quarter last year. Its six-month loss jumped to $417 million, which the company attributed to IPO-related costs.

CRCL outlook

Looking ahead, Circle’s revenue and profits for the year will be determined by the USDC circulation, interest rates, and the distribution costs.

Third-party data indicate that the USDC in circulation has continued to grow this month. There are now $68 billion USDC in circulation, up from $61 billion in July. EURC, its euro alternative, has a market cap of $228 million, up from $57 million in the same period last year.

The other catalyst for the Circle stock price is the actions of the Federal Reserve and the prevailing bond yields. The Fed has maintained rates intact between 4.25% and 4.50% this year, but analysts anticipate a 75 basis point cut late this year.

If this happens and the bond market reacts as expected, its business is likely to be affected. The company will need to boost the amount of USDC in circulation to boost its growth.

Circle’s growth will also depend on its payment platform that it sees as a better alternative to SWIFT. Launched in May this year, the product has already reached agreements with companies, and the upward trajectory may continue after the GENIUS Act.

A key hindrance to Circle’s business is that it pays huge sums of money in distributions. Coinbase receives 100% of the interest earned on the USDC held on its platform and 50% of the revenue on its USDC. As a result, while its reserve income was $634 million in Q2, it paid $406 million in distribution costs.