Summary Circle Internet Group has dropped from its IPO high, now trading near $100, making its valuation more attractive ahead of Q3 earnings. CRCL's Q3 is expected to be strong, driven by robust USDC growth and high interest income, but future rate cuts may limit upside. The launch of Arc blockchain and a potential National Trust Bank license are key long-term catalysts for diversification beyond interest income. Options market shows bullish sentiment for CRCL, but high volatility and crypto market uncertainty keep near-term risks elevated. Following one of the most hyped IPOs of 2025, Circle Internet Group (CRCL) has retraced since the post-IPO high of $298, now trading around $100. At this point, Circle's valuation has come full circle. In a run-up to the Q3 earnings report next week (before market open November 12), CRCL is worth a revisit. I last covered CRCL around the IPO and leaned towards a more cautious Hold rating. The IPO was already richly valued, and the stock price priced in much of the optimism; hence, caution was warranted. Circle’s main business is tied to issuing and managing USD-backed stablecoins and its reserve. USD-backed stablecoins received some policy attention earlier this year, with the stablecoin regulatory bill moving through Congress. The current government shutdown in the U.S. seems to have stalled that progress a bit, as there are more pressing matters. So are stablecoins back in focus or losing momentum? And what’s the traction for USDC ( USDC-USD ), Circle’s flagship product, been like? Not forgetting Circle’s interest income from reserves and expansion into a payment infrastructure, and how close to profitability Circle could be. What to Expect in Circle’s Q3 Result Q2 was a strong beat for Circle, and Q3 guidance was optimistic as of the time Q2 earnings were released back in August. The recent drop in CRCL stock price is not due to a single piece of negative news. I see it as a consequence of some profit-taking from IPO investors while the stock is still finding its "true" intrinsic value. There is also likely some effect from the 25 bps Fed rate cut last month. Circle had some interesting updates that could be the tailwinds in the near term, and some of the updates in Q3 advanced Circle on its roadmap to becoming an infrastructure provider for the internet of money. Beyond the fresh updates (which we’ll touch on down the line), Circle's stablecoin products USDC and EURC saw continued growth in Q3. Q3 was generally a good quarter for the stablecoins market compared to what Q4 is shaping up to be so far - we are halfway into Q4, and USDC circulating supply has only grown by ~2.9%. Total stablecoin trading volume reached $10.3 trillion in Q3 (the most active quarter for stablecoins since Q2 2021). The total stablecoins market grew by 18.3% and reached $287.6 billion in market cap, thus providing a new wave of liquidity for Circle to capture, and USDC reached 73.7 billion in circulating supply as of Q3 end, growing by ~21% in the quarter; USDC circulating supply was ~61.8 billion as of the start of Q3. The USDC circulating supply is currently 75.9 billion, with a fair value of assets held in USDC reserves at $76.2 billion. I expect the growth in USDC supply value in Q3 to be a direct driver of the expected Q3 earnings beat; the massive float earned interest throughout the high-rate quarter. Interest rates also worked in Circle’s favor. The Federal Reserve began a series of rate cuts since late Q3, but the average effective rate during Q3 stayed historically high, around an average of 4.3% in the quarter. That level, combined with USDC’s large reserve base, means Circle likely earned strong interest income through the quarter. Coinbase ( COIN ), a beneficiary of USDC yields, reported that the average USDC balances held across its products rose to an all-time high of $15 billion, which drove its stablecoin revenue to $355 million in Q3. Even as rates eased slightly in September, the high average rate from July to September kept yields on Circle’s reserve assets elevated, positioning Q3 as another strong period for net interest income growth. Previous Circle’s filings show reserve income drives most of the revenue (over 90% of the top line), so a high average rate and a massive float likely pushed net interest income higher in Q3. At this juncture, it is becoming necessary for Circle to develop a more diversified stream of revenue and shield the whole business from interest rate sensitivity. The launch of Arc blockchain testnet is an important step in this strategy. Circle is building Arc to be an open Layer-1 blockchain network purpose-built for enterprise-grade economic activity, designed to be stablecoin-native, and using USDC for gas fees instead of a volatile native token like Ethereum ( ETH-USD ). The predictable dollar-based fees remove a major barrier for institutional adoption. Circle will potentially generate steady non-interest revenue from fees from the volume of payments, FX, and capital markets transactions processed on Arc, and service fees for developer services, custody, and specialized institutional products built on top of the Arc blockchain. Institutions, including Apollo ( APO ), Bank of New York Mellon ( BK ), and Intercontinental Exchange ( ICE ), have already been onboarded on the testnet phase. While the launch of Arc testnet isn't an immediate catalyst for the Q3 results, and any meaningful financial impact from Arc can only be expected from next year when the mainnet launches and adoption takes shape, it is still worth mentioning because it could also shape future sentiment and valuation, as the market seems to be discounting CRCL based on future interest income and the anticipated rate cuts. Despite what I'd call an excellent Q3 and a likely earnings beat, CRCL could still not gain much on a Q3 earnings beat since the Fed has signaled the likelihood of more rate cuts ahead. The market seems to be putting a forward discount on CRCL - and rightly so, since the bulk of the top line still relies on interest earned from the short-dated treasury securities in reserve. CRCL’s drawdown is still a judgement call for each individual investor. On the surface, the current market cap of ~24 billion appears low to Circle’s assets and may suggest undervaluation. But remember that Circle is basically a stablecoin issuer, and most of the over $70 billion in assets are encumbered (held in trust). The USDC in circulation are liabilities. This is why Circle's liabilities almost match its assets. For investors with a longer-term view, I believe the launch of Arc and the National Trust Bank license approval ( Circle has already applied to the OCC for this license, and if that eventually sees approval) would be the more crucial long-term catalysts. In the near term, market data suggests CRCL still has fuel for a potential rebound. Total options open interest [OI] shows calls outweighing puts. Implied volatility is high for the short-term contracts (expiring this month), as traders are anticipating a big move (in either direction) as Q3 earnings approach. OptionCharts Open Interest by Strike chart (November 14th, 21st, and 28th expiries) shows bullish positioning for upside as the volume skews towards calls. The highest concentration of OI is a massive spike in November 21st calls. At the $125 strike (~40k contracts). The skew towards calls shows traders are expecting an upside, but the high overall volatility means risks remain heightened if Q3 earnings disappoint or Q4 earnings become softer than expected. There is also a lot of speculation going on here, as we can see an outlier and so far out-of-the-money call at the $350 strike with ~35k OI. It's tough to decide on CRCL at this juncture. Its valuation is tied to a lot of variables, including the crypto market momentum, which seems to be losing steam these days since Bitcoin reached an all-time high of $126k about a month ago. While CRCL drawdown presents a potential entry point, the risks remain heightened, and caution is still warranted.
