Summary Circle has experienced extreme stock volatility, rising nearly 10x post-IPO before retracing sharply as valuation concerns mounted. USDC in circulation continues to grow, but recent momentum has slowed and is not matching last year’s late-year surge. CRCL’s revenue is very sensitive to short-term interest rates; further Fed cuts threaten growth unless USDC circulation accelerates meaningfully. One of the wildest rides in the market this year has come from Circle Internet Group, Inc. ( CRCL ). The company behind the USDC stablecoin saw its shares rocket higher from their $31 IPO price to nearly $300 before falling back to earth . While the USDC platform is showing nice growth and the company's valuation now looks more reasonable, the company faces a key test in 2026 if short-term US interest rates continue to significantly decline. Previous coverage of the name My most recent article on the name came back in August after the company reported its second quarter results . Revenues came in nicely ahead of street estimates, with USDC in circulation up 86% year over year. While this was offset by lower return rates generated on reserves, the company still boasted roughly 53% total revenue growth. My concern at that time, however, remained a premium valuation, and since then, the stock has lost nearly half of its value, despite the S&P 500 being up more than 5.6%. The current back and forth As a reminder, Circle generates a majority of its revenue from interest on the reserves that back the USDC stablecoin. Generally, those reserves are held in low-risk securities like short-term US treasuries and treasury repurchase agreements. The company publishes monthly reports as to its reserves, which as the chart below shows, allows you to see how much USDC in circulation has grown tremendously in recent years. USDC In Circulation (Circle) The good news is that USDC growth has continued since the end of October. According to Yahoo! Finance data, the figure was up to nearly $78.5 billion as of Saturday night. The somewhat bad news is that in 2024, the final two months of the year saw nearly $9.2 billion in USDC circulation growth. With just under three weeks to go in 2025, November and December this year have only seen about a $2.6 billion increase so far. The other piece of bad news is that short-term interest rates have been dropping as the Fed has now cut rates multiple times and is again starting to purchase Treasury bills. In the company's most recent 10-Q filing , it provided the following graphic showing its return rate on reserves as compared to the quarter's average SOFR, the Secured Overnight Financing Rate. Circle Return Rates (Company Filing) After last week's 25 basis point cut by the Fed, the SOFR rate on December 11th was 3.66%, the lowest it has been in some time. If you go to the SOFR page and look at averages, the 90-day average rate was 4.124% as of December 11th, down about 22 basis points since Q3 ended. However, that average is declining by the day, and with another Fed rate cut in the books, the Q4 average could end up being around 4.00%. Looking ahead to next year 2026 is a major year for the Federal Reserve, as Chairman Jerome Powell's term comes to an end. President Trump is likely to pick someone who is aligned with his mission for very low rates and is already on record saying he wants to see rates at 1% or lower by this time next year. Should the Fed cut rates more than once or twice that's currently expected by the market in 2026, Circle will have a hard time generating substantial revenue growth unless we see a dramatic rise in USDC in circulation. Another item to watch will be where all of this USDC ends up. As I previously discussed, the company makes payments to Coinbase Global, Inc. ( COIN ) for its efforts in growing the USDC ecosystem. Generally speaking, the more USDC held on the Coinbase platform, the more those payments are. As the above 10-Q details, however, the amount in percentage terms on the Coinbase platform has nearly leveled off, being 24% at the end of September as compared to 23% a year earlier. The amount on the Circle platform at the end of Q3 2025 was 14%, up significantly from just 2% a year earlier. The rise in USDC on the Circle platform could be part of the reason why management raised its margin forecast at the Q3 report . Based on the current amount of USDC in circulation and the current SOFR rate, I would project the company's revenues next year to be around $2.85 to $2.90 billion. That looks troublesome when you consider that analysts are currently expecting nearly 22% top-line growth to $3.33 billion. However, Circle management believes that USDC should grow by about 40% a year moving forward. If we get only around half of that growth and the current SOFR rate holds, Circle should be right around that current street estimate. A look at the valuation picture My main reason for being so bearish initially had to do with Circle's extreme valuation. At that time back in the middle of June, shares were trading at more than 172 times their latest annualized GAAP earnings figure and more than 17 times this year's expected revenues. Both of those numbers were a bit above what Coinbase was trading for. If we look forward to 2026 now that this year is almost done, Circle trades at more than 65 times its expected adjusted earnings per share. That's still well above the more than 38 times Coinbase goes for. However, Circle is expected to show quite a bit of earnings growth next year, while Coinbase is forecast to show a low-double digits decline. On a price-to-sales basis, Circle is actually cheaper now despite being projected for more top-line growth, at about 5.9 times expected sales versus Coinbase at 8.3 times. When it comes to street analysts, the picture is very bullish currently . Of the 21 analysts covering the stock, 9 have strong buy ratings with 2 more having buy ratings. There are 7 analysts with hold ratings and 3 with strong sells. The average price target is nearly $145, implying almost 74% upside from Friday's close. I should note, however, that the street average was $235 in the stock's early trading days, so analysts have reduced their valuations a bit. Final thoughts and recommendation As we finish up 2025, Circle Internet Group finds itself at a very interesting place. On one hand, the amount of USDC in circulation continues to grow, almost to $80 billion at this point. However, the Fed's decision to cut rates multiple times this year means that the return rate Circle generates on its reserves continues to head lower. If President Trump gets his way with massive interest rate cuts next year, Circle could be in for a world of hurt. Given a much better valuation now than when I first started covering the stock, I am upgrading my rating today from sell to neutral. If the Fed doesn't do anything too crazy and USDC in circulation continues to grow nicely, there should be some room for upside in Circle shares. However, I'm not yet ready to call this name a buy, given the headwinds I've outlined today. As we get some more of an idea of how 2026 will play out, I will take another look at my rating.
