Since its initial public offering (IPO) last month, Circle Internet Group (CRCL +6.54%) stock has skyrocketed 140% as excitement builds around the possibility that stablecoins could see widespread adoption across traditional finance. Considering the company issues USDC (USDC 0.01%), one of the most popular stablecoins around, many investors believe Circle's stock is just getting started. So, could Circle Internet be a millionaire maker?
NYSE: CRCL
Key Data Points
Stablecoins keep things steady
Stablecoins are a class of cryptocurrencies designed to hold their value relative to a traditional "fiat" currency -- often the U.S. dollar. Where coins like Bitcoin and Dogecoin are subject to dramatic swings in price, stablecoins are intended to never deviate more than a small fraction of a percent from the currency they are "pegged" to.
Though other crypto ventures have tried more complicated mechanisms, Circle maintains USDC's peg to the U.S. dollar by simply holding $1 in cash or short-term Treasury papers for every USDC it issues. Any USDC in circulation is redeemable at any time for $1 in cash.
So what is the point? USDC and other stablecoins provide many of the benefits of certain cryptocurrencies -- transactions are fast, cheap, and nearly frictionless -- without the fear of wild price swings. Like cash, they're intended to be used, not hoarded.
Circle's revenue comes from Treasuries
Despite the shiny technology exterior, Circle's revenue stream is simple. The company makes money through holding U.S. Treasuries. Circle, much like a bank, knows that only a fraction of all the USDC in circulation will be redeemed at any one time, so it only needs to keep a portion of reserves in cash to be instantaneously redeemable by USDC holders. It invests the rest in short-term U.S. Treasuries. That's still a relatively liquid asset, but one that earns Circle interest income.
This is functionally the entirety of Circle's revenue source; of the $1.68 billion revenues the company collected in 2024, $1.66 billion was from reserve interest. So, to be clear, Circle's revenue is directly tied to two main factors: how many USDC are in circulation (and therefore the size of the reserves from which it is earning interest) and U.S. Treasury rates.
CRYPTO: USDC
Key Data Points
Stablecoins could be big
There are currently 62.8 billion USDC in circulation. The company believes that it will grow significantly as adoption progresses throughout the wider economy.
There's ample reason to believe that is true. The GENIUS Act, a landmark bill that creates a regulatory framework for stablecoins and allows for their use in the banking industry, is working its way through Congress. Though some of the finer details may change, it's more than likely it will be signed into law this year as it's one of the few pieces of legislation today that has robust bipartisan support.
Image source: Getty Images.
An analysis from Citi lays out a bear, base, and bull case for the stablecoin market through 2030. Its base case sees roughly $1.6 trillion stablecoins in circulation five years from now, up from today's 234 billion. There is clearly a massive potential here.
It's also likely that USDC captures a significant portion of this total market. It's currently second only to Tether, but its rival wouldn't qualify under the GENIUS Act -- its reserve practices are somewhat opaque, and it uses volatile assets like Bitcoin as collateral. That puts USDC in a prime position.
There are some serious complications, however
There are some key things to consider that complicate the issue, however. First, I think USDC could face significant competition not from Tether or other "crypto native" issuers, but from legacy institutions. It's been reported that some of the largest banks, like JP Morgan Chase and Bank of America, have been in talks to create their own stablecoins. This would undermine the core of USDC's growth thesis. Circle and USDC could even face an official U.S. dollar central bank digital currency (CBDC) issued by the Federal Reserve itself.
Here's another thing to consider. Circle's revenue is directly tied to yields from U.S. Treasuries, which in turn are tied to the interest rate set by the Federal Reserve. We are in an environment of relatively high interest rates, at least in the context of recent history.
If rates are cut, which they likely will be later this year, Circle's income will take a hit. According to an analysis by Sean Farrell, head of digital asset strategy at the firm Fundstrat, every 0.25% drop in the Fed's rate will equal a 10% drop in Circle's revenue. That's pretty significant.
While I think stablecoin adoption will grow, I think investors are getting ahead of themselves. Right now, the stock is overvalued. I think that there are too many long-term risks and not enough of a moat to call Circle a millionaire-maker.
