Shares of Circle Internet Group (CRCL +3.73%) fell this week, down 24.9% as of market close on Friday. The slide comes as the S&P 500 (^GSPC 0.94%) and Nasdaq-100 were up 3.4% and 4.2%, respectively.
The company, which went public earlier this month, is the sole issuer of USDC, one of the most popular stablecoins on the market. After an incredible post-IPO run, the company's stock retreated this week as investors grew wary of its valuation.
NYSE: CRCL
Key Data Points
A week of mostly positive news wasn't enough
Last week, the Senate's passage of the Genius Act, which creates a legal framework for stablecoins and their use in the banking industry, sent Circle stock flying. This week, news that top Republicans want to fast-track the legislation through the House wasn't enough to keep Circle stock moving higher.
It was also big news that the Federal Housing Finance Agency (FHFA) had ordered Fannie Mae and Freddie Mac to formally consider cryptocurrency as an asset in mortgage loan risk assessments, further integrating crypto into traditional finance.
A major valuation is making many nervous
Even after this week's nearly 25% retreat, Circle's market capitalization is still north of $43 billion. With sales last year of $1.7 billion and net income of just $155.7 million, that is a hefty valuation. There is a ton of growth baked into the current stock price -- too much for my taste.
Image source: Getty Images.
While I think stablecoins and USDC will grow rapidly in adoption, there are several glaring issues with Circle that makes me hesitate. Namely, as part of its partnership agreements, Circle owes the majority of its revenue to its partners, especially Coinbase. Also, the company's revenue is extremely vulnerable to changes in interest rates. If rate cuts come, expect Circle's top line to be cut too.
