Analysts Outline Risks to Circle from Slower USDC Growth and Higher Distribution Costs

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Shares of Circle Internet Group (NASDAQ: CRCL) faced a pull back following the release of its latest quarterly results, despite the company reporting substantial growth in key metrics.

Over the past year, the supply of USD Coin (USDC) in circulation expanded to $61.3 billion, marking a 90% increase. Revenue, including income from reserves, rose 53% year-over-year to reach $658 million.

However, according to equity analysts at Mizuho Securities, investor sentiment toward the stock has cooled. The firm attributes this to a growing gap between Circle’s long-term projections for USDC growth and the actual market trajectory.

Rising Costs and Competitive Pressures

While USDC grew 6% quarter-to-date, Circle has previously set expectations for a 40% compound annual growth rate. This slower pace has raised concerns about whether the company can sustain its ambitious expansion targets.

One area of concern highlighted by Mizuho is the rising cost of distributing USDC. The analysts noted that distribution expenses have climbed from 39% of the reserve pool in 2022 to 61% in 2024, with the second quarter figure reaching 64%. Higher costs can limit profit margins, especially if revenue growth slows.

The analysts also pointed to increased competition following the introduction of the GENIUS Act, which could pave the way for more institutions to issue their own stablecoins.

Tether, the largest stablecoin issuer by market capitalization, is reportedly planning a return to US markets. The combination of regulatory shifts and heightened competition could put additional pressure on Circle’s market position.

Interest Rate Sensitivity and Market Outlook

Circle’s earnings are also heavily influenced by US interest rates. With the US Labor Department reporting a 2.7% year-over-year increase in the Consumer Price Index (CPI) for July, slightly below market expectations, speculation has grown that the Federal Reserve might cut interest rates in the near term.

Mizuho noted that while lower inflation is positive for the broader economy, it could weigh on Circle’s earnings, which benefit from higher interest rates on its reserves.

In their client note, Mizuho estimated Circle’s 2027 EBITDA below consensus levels, applying a market multiple of 23x, in line with peers such as Visa, Coinbase, and Robinhood, to arrive at a price target of $84 per share.

Their bear case scenario, which assumes slower USDC growth at a 15% CAGR and lower interest rates, projects a potential decline to $40 per share.

Circle’s performance over the next several quarters will likely depend on how effectively it can address rising costs, navigate a competitive stablecoin environment, and adapt to changes in interest rate policy.

For now, the company remains one of the largest players in the stablecoin market, but the balance between growth, cost efficiency, and market share retention appears increasingly critical for its medium-term trajectory.

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