Summary I'm initiating Circle Internet Group at a Buy rating, as the company offers a very stable revenue stream within the Wild West of the crypto industry. CRCL's regulatory leadership, rapid USDC circulation growth, and Binance partnership position it to gain market share despite interest rate headwinds. Falling interest rates pressure CRCL's interest income, but robust USDC growth and new revenue streams like the Arc blockchain offset this risk. Adjusted EBITDA margins are expanding, and with stable costs and strong tailwinds from the GENIUS Act, CRCL offers a compelling rebound opportunity. As the stock market falls from recent highs, one thought pervades my opportunistic mindset: which stocks, particularly momentum and growth stocks, have fallen sharper than their fundamentals might justify? What rebound opportunities exist in the crash? While in general I regard most crypto and blockchain highfliers with skepticism, Circle Internet Group ( CRCL ) caught my eye recently. The sponsor behind the number-two stablecoin, USDC, has now fallen well below its original $130 IPO price; despite one point reaching above $200 per share. As the stock recedes, the core question on investors’ minds is: can Circle pull off a rebound? Data by YCharts I’m initiating Circle at a buy rating. To address the elephant in the room: the core reason Circle has been falling recently is mostly the same reason other stocks are rising: lower interest rate expectations. Since this hurts Circle’s principal source of revenue (interest income), investors are rightly nervous. And yet I also think the sheer growth of USDC can’t be ignored. Use this dip as a buying opportunity. The U.S. leader in regulated stablecoins First, let’s start with what exactly Circle does. Circle is the sponsor behind one of the largest and best known stablecoins, USDC. For those new to the term, a stablecoin is a cryptocurrency that is pegged to the value of an underlying asset: in this case, 1:1 against the U.S. dollar. One of the best ways to think about stablecoins is fulfilling the original promise of crypto: by acting as an efficient means of exchange on the internet, minus the volatility and price fluctuation that has accompanied the speculative activity of other coins. Since there is no scarcity (like Bitcoin) and each USDC is backed by a real U.S. dollar held in reserve, the price does not move. Stablecoin share overview (Circle Aug 2025 investor presentation) It’s probably not necessary to state that the stablecoin market is growing rapidly. As of the end of Q2, Circle noted that the market cap of stablecoins in circulation grew at a stunning 50% y/y clip to $223 billion. Transactions, meanwhile, grew at an even faster 75% y/y clip as more applications and merchants leverage blockchain technology to process payments. Stablecoins recently grew to more than 1% of U.S. M2 money supply. The stablecoin industry as a whole saw a massive leap in adoption when the GENIUS Act was passed earlier this year by President Trump. GENIUS provided the first regulatory framework for oversight of stablecoins, including auditing reserve balances. Rather than strangle the industry with regulations, this was broadly seen as a positive for mainstream adoption. USDC is only the second largest coin: USDT, or Tether, predates USDC and is roughly 2x larger. And yet regulation is the number one differentiator for USDC. Circle has taken a compliance first attitude toward USDC, while Tether, which is sponsored by a company domiciled in the British Virgin Islands, is less subject to regulation. USDC vs. USDT (Circle Aug 2025 investor presentation) To me, and to many market observers, the regulatory safety net underpinning USDC is a major reason why Circle is poised to gain market share. The chart below showcases that USDC's share of crypto trading volumes has grown to 10%, up from just 1% in the year-ago quarter. This is just a beginning indication of the potential that USDC has to grow. Key to USDC's market share expansion is a partnership with Binance , which is the largest crypto trading platform in the world. Since December 2024, Binance has made USDC more broadly available to its 240 million global customers. Since the partnership kicked off, USDC has also grown as a share of assets held in custody by Binance, as shown in the chart below: USDC growth (Circle Aug 2025 investor presentation) Interest income: at risk as rates fall, but circulation growth should offset Now let's turn our attention to the number-one factor that is pushing Circle stock down. Circle generates the lion's share of its revenue from interest held on the cash and short-term securities that back its issuance of USDC. As shown in the chart below, reserve returns have been falling alongside interest rate declines: in Q2, reserve returns of 4.14% (roughly matching current yields on U.S. short term treasury bonds, as measured by the SHV ETF ( SHV )) fell -103 bps y/y. Circle reserve return rate (Circle Aug 2025 investor presentation) After the close of the quarter, the Fed cut rates by a quarter point, and is expecting two further cuts by year-end. Current estimates are placing rate-cut odds for only one further cut in 2026. So all else equal, rates could fall by 100 bps relative to current levels, which would cut out ~25% of Circle's revenue stream. Note as well that Circle still pays out a large portion of this revenue as "distribution fees" to its large crypto wallet partners, namely Coinbase and Binance. As rates have fallen and as Circle has focused on growth, its RLDC margin (revenue less distribution cost) has also dwindled somewhat to 38%, meaning that Circle only generates 38% of clean net revenue for each dollar it earns in interest income. Circle RLDC margin (Circle Aug 2025 investor presentation) While I agree that interest rate declines are a headwind for Circle, there are two reasons that I think the company will still be able to pull ahead: Circulation growth is far outpacing expected interest rate declines. As I previously mentioned, a ~100 bps fall in interest rates will hurt interest revenue by ~25%, relative to the company's current ~4% reserve return rate. But at the same time, USDC circulation grew at 90% y/y in the most recent quarter. I also think that the recent risk-off attitude in the stock market and the selloff in momentum stocks will push more investors to increase their allocation to cash - and USDC is now a core alternative for cash holdings. Coinbase currently pays a 4.1% yield on USDC held on its platform. All in all, Circle is still well poised for revenue growth as stablecoin participation and usage itself grows, and as Circle's own market share expands. Alternative revenue streams. Circle recently released the Arc blockchain, which is its own payment protocol that is natively designed to support USDC transactions (as an alternative to using USDC on other blockchains, such as Ethereum). Circle can earn "gas" fees from transactions on the Arc network, which is a revenue stream that didn't exist entirely in 2024. While it's still early days and we have yet to see how wide of an adoption that Arc can achieve, this initiative helps to boost Circle's horizon beyond earning just interest alone. Healthy adjusted EBITDA margin expansion and reasonable valuation We also think that amid top-line concerns, Circle's growing profitability shouldn't be ignored. In Q2, Circle grew adjusted EBITDA at a 52% y/y pace (again, this is in spite of a 103bps y/y decline in reserve return rates) to $126 million, representing a 50% margin against revenue less distribution and transaction costs (the 38% RLDC margin we discussed earlier). This improved 5 points y/y. Circle adjusted EBITDA (Circle Aug 2025 investor presentation) Circle is guiding to $475-$490 million in full-year adjusted opex (excluding stock comp), which implies quarterly opex holding stable at ~$125 million per quarter through the balance of the year. Circle outlook (Circle Aug 2025 investor presentation) The company has also guided to a 40% CAGR in USDC circulation (which should more than offset interest rate pressure), growth in "other revenue" including the new Arc blockchain initiative, and RLDC margins stabilizing in the 36-38% range. To me, this is a powerful combination for further adjusted EBITDA margin expansion. At face value, Circle looks expensive at a 58x forward adjusted EBITDA that sits slightly above 2x of Coinbase's valuation. Data by YCharts But the reason I think Circle's valuation is quite reasonable is because of its rapid pace of current adjusted EBITDA expansion (with all the factors necessary for continued growth still in place: USDC circulation growth well in excess of interest rate declines, modest opex growth, and stable distribution costs) which makes near-term adjusted EBITDA multiples less reliable. Coinbase, on the other hand, looks cheap relative to Circle: but the vast majority of Coinbase's revenue depends on trading revenue, which is very volatile and fluctuates widely from quarter to quarter, whereas Circle's revenue is generated from a very stable interest income stream. In fact, Coinbase's revenue essentially flatlined in the most recent quarter (a function of lower crypto trading volatility) while adjusted EBITDA declined -14% y/y. Coinbase Q2 highlights (Coinbase Q2 shareholder letter) Key takeaways I'd much rather bank on a stable, predictable company like Circle rather than bet on Coinbase's very volatile trading revenue. In my view, the tailwinds from the passage of the GENIUS act this year is unlocking substantial adoption of stablecoins and, in particular, USDC, which is positioning Circle for tremendous revenue growth in spite of interest rate headwinds. Interest rate risk is already priced into the stock: stay long and use the dip as a buying opportunity.
