Circle's stock (ticker: CRCL) skyrocketed to an intraday high of $138.57 on its third trading day, marking an approximate 347% increase from its $31 IPO price. This surge was fueled by significant institutional investments, including $50 million from Japanese financial giant SBI Holdings and a sizable acquisition of 4.48 million shares by Cathie Wood's ARK Invest. Multiple ETFs tracking Circle have been filed, highlighting robust investor enthusiasm.
Despite the remarkable rally and a current market capitalization surpassing $27 billion, concerns arise around Circle's valuation and its interest rate-sensitive revenue model. The company generates nearly all revenues from interest earned on reserve assets backing its USDC stablecoin, making it vulnerable to potential Federal Reserve rate cuts anticipated by the market. Analyst estimates suggest a 25 basis point rate reduction could lower Circle's 2026 EBITDA by $100 million.
Circle posted $1.6 billion in annual revenue for 2024 with a net income of $155 million, resulting in a high price-to-earnings ratio of 174.2, reflecting premium valuation concerns compared to industry norms. The company is not the dominant player in a rapidly growing stablecoin sector projected by Citi to reach over $1.6 trillion by 2030.
Additionally, analysts warn of typical post-IPO momentum loss and profit-taking risks, drawing parallels with previous public debuts like Coinbase, Robinhood, and Webull, which experienced significant price corrections following initial gains. The approaching lock-up expiry period, which often prompts insiders to sell shares, may also contribute to downward pressure on CRCL's stock price.