Circle stock plunges 15%, analysts predict bearish pressure from key long-term headwinds

Circle (CRCL) shares slid 15% on Tuesday following analysts' predictions that declining interest rates and competition from other stablecoin issuers would affect its long-term growth.

Circle stock breaks bullish run after 15% plunge

USDC issuer Circle's CRCL took a hit on Tuesday, retracing 15% from its previous daily close of $263, with its market capitalization dropping below $60 billion.

The decline was likely fueled by sell-offs from major shareholders, including Cathie Wood's Ark Invest, which offloaded 415,844 of its Circle shares for roughly $110M on Monday.

CRCL's plunge comes after a bullish rampage since the company listed on the New York Stock Exchange (NYSE) on June 5. From an initial public offering (IPO) price of $31, CRCL skyrocketed over 800%, reaching a high of $292.5 on Monday. The company's market value also rose above $71 billion, outperforming USDC's market cap and nearly matching that of Coinbase before its decline.

The timing of Circle's public offering aligned with major progress in US stablecoin legislation, particularly with the GENIUS bill passing the Senate barely two weeks after CRCL debuted on the NYSE. The bill passing the final Senate voting round was seen as a major victory for stablecoins, drawing institutional attention to Circle's USDC, which is the company's major source of revenue.

Despite its current run, several analysts predict potential long-term headwinds for CRCL.

Compass Point analyst Ed Engel stated in a note to investors on Tuesday that the stablecoin legislation will trigger rising competition for CRCL, which may pressure its market share.

"This influx of competition could reduce long-term market share expectations and pressure CRCL shares in 2025," Engel shared in the note.

Engel and his team assigned Circle a Neutral rating and slapped it with a price target of $205, after which CRCL began a downtrend.

Coin Metrics analysts, led by Tanay Ved, echoed a similar sentiment in a report on Tuesday, highlighting that Circle could face key risks, including upcoming competition from regulated stablecoin issuers and its current business model, which heavily relies on revenue from its reserve.

"Based on Circle's 2024 gross revenue of $1.67B and net income of $157M, $CRCL is currently trading at ~37x trailing revenue (P/S) and ~401x trailing net income (P/E). These multiples far exceed comparable fintechs like NuBank (~27x), Robinhood (~45x) and even Coinbase (~57x), which have more diversified revenue streams and higher margins," wrote Coin Metrics analysts.

While Circle is riding on the wave of the GENIUS Act, a first-mover advantage in regulated markets, and a potential increase in the stablecoin addressable market, the analysts cautioned that its huge market cap signifies that "narrative-driven enthusiasm appears to be outpacing underlying fundamentals," especially as 56% of its USDC reserve revenue goes to Coinbase.

"Key risks include heavy reliance on interest income, which could compress if U.S. interest rates fall, and rising competition from banks and fintechs, as the GENIUS Act paves the way for more regulated stablecoin issuers with similar business models," they added.

CRCL closed the day at $222, marking a 15% decline that sent its market cap to $54 billion, according to data from Yahoo Finance.