Why The Circle Stock Price Could Crash Further

Key Insights:

• Circle stock price has pared back some of the post-IPO gains.
• The USDC market cap has stalled, while EURC has dropped.
• Federal Reserve rate cuts will hurt its revenue growth.

Circle stock price has crashed by over 36% from its highest point this year, and top metrics point to more downside. The CRCL stock was trading at $188 on Monday, July 7, bringing its market cap to $42 billion, down from over $70 billion in June.

The main bearish catalysts for the stock are the stagnating USDC and EURC stablecoins, valuation, IPO lockup expiry, and Federal Reserve interest rate cuts.

USDC and EURC Stablecoin Growth Has Slowed

Circle’s primary business is issuing stablecoins that are backed by the US Dollar and the Euro. USDC, its stablecoin, is the biggest one in the industry with a market cap of over $62 billion. EURC, which is pegged to the Euro, has a market cap of $207 million.

Most of Circle’s revenue comes from the interest it earns by investing its funds in low-risk assets, like government bonds. Therefore, its revenue growth happens when rates are high and when its assets are in an uptrend.

The CoinMarketCap data shows that the two stablecoins are no longer growing as they did in the past. EURC’s market cap has dropped to $207 million from the year-to-date high of $239 million. Similarly, the USDC market cap has remained at $62 billion in the past few months.

Therefore, there is a possibility that Circle’s revenue growth will be impacted. It could also hurt Circle stock price.

Federal Reserve and European Central Bank Interest Rate Cuts

The other major risk facing the Circle stock price is that the European Central Bank (ECB) has slashed interest rates nine times this cycle. These cuts mean that Circle’s EURC revenue will slow down substantially.

The Federal Reserve has maintained high interest rates this year, enabling Circle to generate substantial revenue. Its prospectus showed that its first-quarter revenue rose by 58% to $578 million, while its profits jumped to $64 million.

The risk, however, is that analysts anticipate a series of rate cuts starting from September this year. Goldman Sachs sees three cuts this year, while those at Morgan Stanley expect seven cuts in 2026. Furthermore, Trump has promised to nominate a Fed Chair who will commit to cut rates more.

Therefore, a combination of low interest rates and slow asset growth is a sign that Circle’s revenue trajectory will be impacted.

The situation is further complicated by the GENIUS Act. It requires stablecoin issuers to invest their assets exclusively in liquid assets, such as US bonds. That differs significantly from banks, which invest customer deposits in loans and other areas.

Moreover, Circle’s other revenue is much lower than its reserve income. Its other revenue in Q1 was just $20 million, lower than the reserve income of $557 million.

CRCL Valuation Concerns

Furthermore, the Circle stock price could decline further due to valuation concerns. Data shows that Circle has a forward price-to-earnings ratio of 148, much higher than the technology sector median estimate of 24.

The valuation metric is also much higher than the S&P 500 Index average of 22. It is higher than other crypto companies like Coinbase and Robinhood.

Circle’s extreme valuation is because of its market share in the stablecoin industry that analysts expect to boom in the future. For example, Visa anticipates that the industry will be worth over $1.6 trillion in 2030, a noytable thing for Circle because of its second-biggest market share.

When a company is this overvalued, there is always a risk of its stock plunging as investors take profits. Indeed, Cathie Wood has already sold shares worth millions of dollars.

Lock-up Expiry Could Trigger More Circle Stock Crash

A lock-up mechanism happens when a company’s insiders are allowed to sell their stock after the IPO. It prevents a situation where these insiders sell the stock immediately after the IPO, leaving investors holding the bag.

Circle’s lockup expiry will happen in December, six months after its IPO. It could lead to more selling pressure.

Potential Circle Stock Price Targets in the Coming Weeks

Circle stock price surged after its IPO. However, the highlighted risks mean that it could continue plunging, potentially to below $100 in the coming weeks. JPMorgan analysts have pushed their target to $80, a notable development since the company was the IPO’s main banker.

Disclaimer

This article is for informational purposes only and provides no financial, investment, or other advice. The author or any people mentioned in this article are not responsible for any financial loss that may occur from investing in or trading. Please do your research before making any financial decisions.