Shares of Circle Internet Group (CRCL 6.74%) jumped today, finishing the day up 9.3%, but were up as much as 10.4% earlier in the day. The spike came as the S&P 500 and Nasdaq Composite rose modestly.
A wave of positive sentiment within the world of crypto helped lift Circle stock just a month after its initial public offering.
NYSE: CRCL
Key Data Points
A week of mostly positive news wasn't enough
Bitcoin raced past the $120,000 mark for the first time ever as lawmakers in Washington kicked off "Crypto Week." The U.S. House of Representatives will deliberate on several crypto bills that, if passed, will create a much clearer regulatory framework for crypto, especially in regard to the use of stablecoins by banks and other institutions. Circle, which issues one of the most popular stablecoins on the market, USDC, would benefit greatly from their passing.
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Circle carries a hefty valuation
Circle's market capitalization is still north of $50 billion. With sales last year of $1.7 billion and net income of just $155.7 million, that is an extremely hefty valuation. There is a ton of growth baked into the current stock price -- too much for my taste.
While I think stablecoins and USDC will grow rapidly in adoption, there are several glaring issues with Circle that make 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 -- and they likely will -- expect Circle's top line to be cut, too.
