Last Update30 Jul 25Fair value Decreased 63%
Update: Why I’m No Longer Bullish on Circle
Since publishing my original thesis on Circle, I’ve sold my position.
Over the past few weeks, I’ve done more research, especially as more data has become public, and my view has shifted. While Circle still plays a role in the broader stablecoin ecosystem, the company is far more vulnerable than the market is pricing in.
I now believe the real winners from the GENIUS Act are Coinbase and Tether. Traditional banks will benefit too, but their adoption curve will likely be slow (and they’re not my cup of tea). Circle, on the other hand, finds itself stuck in a tough spot, caught between structural regulatory constraints and deteriorating economics.
The Regulatory Straitjacket
The GENIUS Act imposes strict reserve requirements on stablecoin issuers. Reserves must be held in cash, demand deposits, or short term Treasuries. This eliminates the flexibility to lock in longer duration yields during a rising rate cycle and leaves Circle fully exposed to short term rate moves.
This wasn’t fully appreciated at the time of the IPO, but it’s now clear that Circle’s business model is structurally capped, both in yield potential and margin expansion. As someone who initially bought into the stock at IPO, I welcomed the narrative shift and took advantage of the price surge. But the deeper I looked into the details, particularly the reserve limitations and reward prohibitions, the more concerned I became.
The Interest Rate Cliff
As already highligted in my original narrative, the company’s revenue is dangerously concentrated. Over 95% of it comes from interest income on reserves, almost entirely short term in nature. As the Fed is about to enter a rate cutting cycle, Circle faces a steep cliff. A 100 basis point cut could reduce revenue by $441 million annually; a 200 basis point move could shave off nearly $900 million.
The Tether Loophole
Perhaps the most surprising revelation in the GENIUS Act was a carve out that appears to disproportionately benefit Tether. While U.S. domiciled stablecoin issuers like Circle are tightly regulated under the act’s reserve and reward constraints, foreign issuers operating outside the U.S. banking system face looser enforcement—at least for now.
This opens the door for Tether to continue expanding USDT issuance without the same regulatory handcuffs, not just in offshore markets, but increasingly within the US as well. I don’t think this is accidental. It likely reflects Tether’s aggressive lobbying efforts in Washington. I’ve been following Tether and my fellow Italian Paolo Ardoino closely since 2017, and despite it being a private company, I feel I know their operations even better than Circle’s.
Let’s not forget: in 2024, Tether became the fourth-largest buyer of US Treasuries, surpassing Germany, and is now the 18th largest holder globally. With that kind of capital and influence, it’s no surprise the US administration, including Trump, is treating them as a strategic partner. In just a few years, Tether has become one of the largest promoters of the US dollar globally and now plays a key role in maintaining dollar hegemony. As I’ve mentioned before, we may be witnessing the rise of a new “petrodollar” system, only this time it’s built on stablecoins. And right now, Tether is far ahead of Circle. https://www.bloomberg.com/news/articles/2025-07-23/tether-ceo-says-stablecoin-issuer-is-making-plans-to-do-business-in-us
Donald Trump leading a standing ovation for Tether CEO Paolo Ardoino at the White House - wild. https://x.com/paoloardoino/status/1946307158515069334
So in my view, I see Tether to continue being able to scale while U.S. competitors are boxed in, giving it a significant first-mover and regulatory arbitrage advantage, especially in emerging markets and unbanked regions.
The Affiliate Restriction and Coinbase Advantage
One of the more underappreciated aspects of the GENIUS Act is its ban on stablecoin issuers offering rewards directly to customers. Only “affiliates” can offer rewards, effectively locking Circle into long-term, costly distribution agreements like the one it has with Coinbase.
That deal is brutal. In 2024, Circle paid $900 million in distribution costs to Coinbase, keeping just $768 million of the $1.66 billion in reserve income it generated. Coinbase, which controls 18% of USDC supply, retains 100% of yield from coins held on its own platform. Circle gets none of that. And with the GENIUS Act now law, Circle is legally prohibited from trying to compete on yield.
This structure makes Coinbase the primary economic beneficiary of USDC’s growth—not Circle. As USDC adoption rises, distribution costs will rise too. In fact, we’re already seeing signs that distribution costs may outpace income. In Q1 2024, they grew by 51% YoY—potentially overtaking revenue growth itself.
Valuation
At IPO, I thought the story was compelling enough to take a starter position. But Circle’s valuation quickly became product of hype and extreme optimism, and little regard for regulatory, structural, or macro risks.
I've reduced my estimates and FV and while still optimistic, the price of today is well above what I believe would be a fair value for Circle.
What Could Go Right?
To be fair, Circle has optionality. It’s trying to reposition itself as a tech platform, not just a stablecoin issuer. Initiatives like USYC (a tokenised money market fund) and the acquisition of Hashnote are examples of diversification. If these succeed, it could help reduce dependence on rate-sensitive income.
But these are early-stage efforts and far from guaranteed.
Final Thoughts
I’m content with how the investment played out. I entered at IPO, captured meaningful gains during the post-GENIUS Act rally, and gradually exited as new data began to challenge my original thesis.
Could Circle ride another wave of crypto related enthusiasm in Q4 2025, especially if we see the typical post August/September rebound? It’s possible. But at this stage, the risk/reward no longer stacks up for me, there are more compelling opportunities elsewhere in the space.
I think sometimes the smartest move is to step aside and let the hype burn off, before fundamentals bring the story back down to earth.
Company Overview
Circle is the issuer of USDC, the world’s second-largest stablecoin. As of July 2025, USDC has:
- $62.3B in circulation
- $25.5T in cumulative on-chain transaction volume
- Zero depegs during market stress
Circle went public in July 2025 under the ticker CRCL, after years of operating privately and disclosing financials through SEC reports. The IPO was incredibly successful with price appreciating by several multiples in a matter of a few days.
Its business model is elegantly simple and highly profitable. Circle issues USDC tokens backed 1:1 with cash and short-duration U.S. Treasuries, earning risk-free yield on that float.
In 2024:
- $1.7B in revenue
- $156M in net income
- $10.1B average reserves held (mostly U.S. Treasuries)
This is essentially a digital money market fund at global scale, with no lending, no crypto risk, and no fees for users.
How Stablecoins Work and Why They Matter
Stablecoins like USDC are not speculative assets. They serve as infrastructure, programmable dollars that:
- Increase demand for U.S. Treasuries. Every $1 of USDC minted is matched by $1 invested in U.S. debt. This is increasingly important as major foreign holders like China have been selling U.S. Treasuries while accumulating gold. This is one of the main reasons why the US gov is so supportive.
- Provide synthetic dollar access globally. In countries like Argentina, Nigeria, or Turkey, stablecoins offer a way to save and transact in USD without bank exposure or capital controls.
- Enable financial inclusion. All that is needed is a smartphone and a wallet app.
- Power the liquidity layer of crypto. Stablecoins represent the majority of trading volume in crypto markets.
What Visa did for plastic cards, Circle and Tether are doing it for digital dollars, and the addressable market is global.
Growth Catalysts
- GENIUS Act Passed (July 2025) The U.S. House passed the GENIUS Act, providing the first federal regulation for stablecoins. Circle now has regulatory clarity and a license to operate across the United States. This provides a first-mover advantage over competitors like Tether, which remains offshore and unregulated. https://www.cbsnews.com/news/house-vote-crypto-genius-act-stablecoin-regulations/
- Rising international demand Over 80 percent of USDC volume now comes from outside the United States. Stablecoins are being adopted in emerging markets for both commerce and savings. USDC is evolving into a modern version of the eurodollar.
- Rebuilding the Global Financial RailsThe existing cross-border payment system, built around SWIFT, is slow, expensive, and outdated. Transactions can take days, involve multiple intermediaries, and come with high fees, especially for emerging markets and unbanked populations.Circle’s USDC offers a faster, cheaper, programmable alternative that can settle in seconds across borders. With growing institutional interest and government discussions around blockchain infrastructure, stablecoins are increasingly seen as the foundation for the next-generation global payment network.As geopolitical tensions rise and countries like Russia and China push away from SWIFT, the U.S. has a strong incentive to support dollar-backed stablecoins like USDC as a way to preserve the dollar’s dominance and modernise the system on American terms.This is not just a tech upgrade. It’s a potential paradigm shift in how global value moves and Circle is positioned to be one of its key operators.
- Partnership with Coinbase (COIN) Circle and Coinbase split USDC reserve revenue equally. Coinbase serves as the front-end distribution engine. Circle handles compliance and treasury, it is the infrastructure layer.
- Enterprise traction Circle Mint offers real-time USDC minting and redemption for institutions. Partnerships with Stripe, Visa, Nubank, and Mercado Pago embed USDC into payments.
Risks
- Falling interest rates. Circle earns revenue primarily by investing USDC reserves in short-duration U.S. Treasuries. In 2024, with rates near 5%, this model generated over $1.7B in revenue. But the company is heavily exposed to interest rate cycles. A 100 basis point cut could reduce annual revenue by approximately $800M.The risk of cuts is rising fast. Federal Reserve Chair Jerome Powell is expected to step down in mid-2026, if not earlier. Donald Trump has made no secret of his dissatisfaction with Powell’s rate policies. One of the frontrunners to replace him is Kevin Warsh, a former Fed governor and advisor to billionaire investor Stanley Druckenmiller.In a recent CNBC interview, Warsh openly criticised the Fed’s current framework, called for regime change, and suggested we are entering a structural decline in prices. That backdrop would support multiple rate cuts.This aligns with a broader political shift toward looser monetary policy aimed at stimulating growth and countering deflationary forces like AI-driven productivity and global supply chain improvements. If Warsh or someone like him takes over, rate cuts could happen faster and more aggressively than the market currently expects. This presents a clear risk to Circle’s yield-driven revenue model.
https://www.youtube.com/watch?v=4QFkauEI3XI
- Coinbase revenue sharing. Circle shares 50 percent of its yield with COIN. Any change in this relationship could affect profitability or unlock more margin.
- Competition from Tether. Despite regulatory opacity, Tether remains dominant in Asia and offshore markets. Tether's 2024 profit was reportedly $13B, making it one of the most profitable companies in the world per employee.
- Regulatory headwinds. While the GENIUS Act is a major step forward, further regulations, such as capital requirements or federal oversight, could increase operational costs or restrict expansion.
Valuation
At the time of writing, Circle (CRCL) trades at $241 per share. Based on a discounted cash flow (DCF) model with the following assumptions:
- Revenue growth of 20% per year for the next five years
- Net margins reaching 18% by year five
- A 10% discount rate
…I estimate a fair value of $326 per share.
While not a deep value play, Circle offers exposure to one of the most profitable emerging business models in fintech. And with the GENIUS Act and macro trends aligning in its favour, a re-rating driven by narrative and institutional capital could push the price higher in the short to medium term.
Final Thoughts
Circle is a long-term play on the stablecoin infrastructure that could reshape global finance. Its growth is backed by real revenue, strong regulatory momentum, and strategic partnerships. But it’s not without volatility.
The stock is prone to hype-driven rallies and sharp corrections. As with many crypto-adjacent names, timing matters. If you’re bullish on the space, it’s wise to wait for pullbacks rather than chase breakouts (especially if late).
This is a high-upside, high-uncertainty bet on the future of money. Worth watching closely.
How well do narratives help inform your perspective?
Disclaimer
BlackGoat is an employee of Simply Wall St, but has written this narrative in their capacity as an individual investor. BlackGoat holds no position in NYSE:CRCL. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimate's are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.