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Update shared on30 Jul 2025

Fair value Decreased 63%
BlackGoat's Fair Value
US$122.10
25.2% overvalued intrinsic discount
30 Jul
US$152.93
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n/a
7D
-16.7%

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.

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.