Mizuho Securities: Circle faces medium-term risks from slowing USDC growth, rising distribution costs, and possible interest rate cuts
PANews reported on August 14th that, according to The Block, Mizuho Securities' equity researchers stated that Circle's stock faces medium-term risks, including slower-than-expected USDC growth, rising distribution costs, and potential Federal Reserve interest rate cuts. The analysts predict a base price of $84 for Circle's stock, while a bearish forecast suggests a price of $40 by 2027, lower than the company's closing price of $153.16 on Wednesday, one day after the company released its quarterly earnings report. Notably, Bernstein analysts maintained their target price of $230 for the stock.
Analysts believe there could be three reasons for the stock's unexpected underperformance:
First, the gap between USDC’s “dream” and “reality” regarding its issuance is widening. While the stablecoin has seen a 6% quarter-to-date increase amidst surging interest in cryptocurrencies, this still falls short of the company’s long-term compound annual growth rate of 40%.
Coupled with the growing issuance costs, which "rose from 39% of the reserve pool in 2022 to 61% in 2024... reaching 64% in the second quarter," analysts note that Circle's profit margins appear to be further compressed. Increased competition with the introduction of the GENIUS Act could accelerate this process. Several major institutions have expressed interest in launching or introducing stablecoins, and Circle's largest competitor, Tether, is developing plans to re-enter the US market.
Finally, the analysts said, "The cooling CPI is good news for the economy, but bad news for CRCL." The U.S. Labor Department reported on Tuesday that the U.S. consumer price index rose 2.7% year-on-year in July, slightly below expectations, which has fueled expectations that the Federal Reserve may cut interest rates.
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