Circle (CRCL) stock fell 15% on Tuesday, retreating from a stunning rally fueled by optimism over stablecoin regulation and adoption, as Wall Street shifted its focus to the rising risk of competition in the digital token space.
Shares of the issuer of the USDC stablecoin (USDC-USD) snapped a three-day winning streak to close just above $223. The stock soared after the Senate passed the GENIUS Act last week — legislation that would establish a federal framework for digital tokens backed by assets such as the US dollar.
“In the near term, we expect CRCL to continue trading off bullish momentum around stablecoin adoption,” Compass Point analyst Ed Engel wrote in a note Tuesday.
But the same regulatory clarity that lifted Circle shares is also expected to open the floodgates for new competition once the bill is finalized later this summer, Engel wrote.
“We expect competition to accelerate after stablecoin legislation passes,” Engel wrote. “This influx of competition could reduce long-term market share expectations and pressure CRCL shares in 2025.”
Engel and his team initiated coverage of the stock with a Neutral rating and $205 price target.
Circle generates most of its revenue from “reserve income” — interest earned on assets backing its USDC stablecoin, a large part of which are short-term US Treasurys.
The company also earns income from services such as blockchain integration, where developers pay Circle to integrate USDC into their applications, and also fees for redeeming USDC for dollars.
Engel emphasized that distribution will be the key driver of market share growth going forward, especially as more regulated companies begin launching their own stablecoins.
“Circle already pays ~60% of reserve revenue to distribution partners, primarily to Coinbase but more recently Binance,” Engel wrote. “While Coinbase and Binance are ideal partners for capturing demand from crypto speculators, we believe USDC needs to partner with mainstream businesses to capture market share within payments.”
On Monday, fintech firm Fiserv (FI) announced plans to launch a digital asset platform, including a new stablecoin (FIUSD) by the end of this year using existing infrastructure from issuers Paxos and Circle.
“For CRCL, we like seeing its inclusion as a leading partner of FI as FI develops its own stablecoin — this is a nice ‘win’ for CRCL which highlights the company’s ongoing rise,” Seaport Research Partners analyst Jeff Cantwell wrote in a note on Monday.
Last week, Cantwell initiated coverage on Circle with a Buy rating and a $235 price target. Shares have soared roughly 620% from their IPO price of $31 on June 5.
