Circle stock faces pressure as rate cuts, lock-up expiry loom

Circle stock price has gone parabolic after its highly successful initial public offering earlier this month.

Circle, trading under the ticker symbol CRCL, jumped to a record high of $298, bringing its market capitalization to $58 billion, slightly below the USD Coin (USDC) valuation of $61 billion. 

The surge in Circle stock has been driven by ongoing stablecoin hype, with more companies exploring launches of their own. Top U.S. banks are reportedly in talks to develop a stablecoin, while major retailers like Amazon and Walmart are also working on digital dollar products.

Meanwhile, Fiserv, a $94 billion company, is developing FIUSD, a stablecoin that will leverage infrastructure from Paxos and Circle and run on the Solana (SOL) blockchain.

Circle stock has also rallied after the U.S. Senate passed the GENIUS Act, which establishes a regulatory framework for the stablecoin market. Circle stands to benefit if Tether (USDT), the current market leader, fails to comply with the new requirements.

Circle stock faces risks ahead

Despite the rally, Circle stock faces several key risks. For one, the growth of USDC has stalled. Its market capitalization remains around $61.7 billion, roughly unchanged over the past few weeks.

On the positive side, USDC’s transaction volume and the number of active stablecoin addresses have jumped by 72% and 20%, respectively, in the past 30 days. Adjusted volume rose to $829 billion, while total addresses climbed to 9.7 million.

The other risk is that Circle has become highly overvalued, which likely explains why Cathie Wood has started to sell. Its market capitalization of $58 billion is slightly lower than its combined assets. It is also much higher than its 2024 revenue of $1.67 billion, implying the stock trades at more than 30 times sales which might scare away some invesetors.

There is also macro risk. The Federal Reserve is expected to start cutting interest rates soon. In recent comments, Fed officials Michele Bowman and Christopher Waller said they would support a rate cut at the July meeting.

Rate cuts would hurt Circle’s revenue model, as the company earns most of its income from investments in short-term bonds, whose yields will decline in a lower-rate environment. Additionally, CRCL stock may face selling pressure as the IPO lock-up period approaches its expiry in December, which would allow insiders to begin unloading shares.