The Circle stock price became parabolic after a very successful initial public offering earlier this month.
The circle trading under the ticker symbol CRCL jumped to a record high of $298, bringing its market capitalization to $58 billion, slightly below the valuation of the $61 billion USD coin (USDC).
The surge in circle stock is driven by the ongoing Stablecoin hype, with more companies investigating their own launches. Top US banks are reportedly in talks to develop Stablecoin, but major retailers like Amazon and Walmart are also working on digital dollar products.
Meanwhile, Fiserv, a $94 billion company, is developing FiusD, a stablecoin that runs on the Solana (Sol) blockchain, leveraging infrastructure from Paxos and Circle.
Circle Stock has also been gathered after the US Senate passed the Genius Act. Circle can benefit if current market leader Tether (USDT) is not complying with the new requirements.
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Circle Stocks face risk first
Despite the gathering, Circlestock faces several important risks. First, USDC’s growth is stagnant. Its market capitalization remains at around $61.7 billion, and has remained largely unchanged in the past few weeks.
On the positive side, USDC transaction volume and number of active Stablecoin addresses have increased by 72% and 20% over the last 30 days, respectively. Adjusted volume rose to $829 billion and total address rose to 9.7 million.
Another risk is that circles are very overvalued. This could explain why Kathy Wood started selling it. The $58 billion market capitalization is slightly lower than total assets. It also means that revenues in 2024 were much higher than $1.67 billion, meaning that stock trading is selling at more than 30 times more sales.
There is also a macro risk. The Federal Reserve is planning to start cutting interest rates soon. In recent comments, Fed officials Michele Bowman and Christopher Waller said they support the rate cuts at their July meeting.
Interest rate cuts will hurt the circle’s revenue model. This is because the company earns a large portion of its revenue from investments in short-term debt, which reduces yields in low environments. Additionally, CRCL stocks could face sales pressure when the IPO lockup period approaches its expiration date in December, allowing insiders to drop their shares.
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