Original Title: Circling Back to Circle
Original Author: Thejaswini MA, Token Dispatch
Original Translation: BitpushNews
There are companies that can actually increase in value when the global situation deteriorates: defense contractors, oil unions, gold miners. These are common examples where their business models inherently depend on instability, converting that risk into pricing.
Circle does not belong to this category. Its token design was originally intended to always be equal to 1 dollar. Stability is the entire essence of its product.
However, Circle's stock price has skyrocketed from $49.90 on February 5 to about $123 today, more than doubling in just five weeks. Meanwhile, the broader cryptocurrency market is still 44% lower than its peak level in October last year.
A company designed to pursue price stability has become one of the hottest trading targets in the market due to the world's increasing turmoil.
This article will explain the reasons behind this phenomenon, as well as the disparity between Circle's true nature and the current market pricing.
What is Circle (Returning to the Essence)
Strip away the brand packaging, payment narratives, and infrastructure references, what you are left with is: Circle holds U.S. Treasury bonds.
Every dollar of USDC in circulation is backed by a dollar reserved in short-term government bonds. The interest from these debts belongs to Circle. This accounts for about 90% of the company's revenue in any given quarter. Once you see this, its business model is not complicated: Circle is a money market fund that issues stablecoins.
This means that Circle's revenue is a key indicator: the federal funds rate. When rates are high, Treasury bonds yield even more, leading to greater income for Circle for each USDC in circulation. When rates drop, income contracts. Everything else is just expansion.
Here is the chain reaction that led to the stock price bouncing back 150% from its February low:
According to @finance.yahoo, the Iranian conflict has driven a rise of about 35% since February 28. A price exceeding $100 indicates over-panic, and over-panic means that if the Federal Reserve lowers rates, it would amplify recklessness. The decision to keep rates unchanged on March 18 was never really questioned. Even before the outbreak of war, CME FedWatch showed a probability of over 90% for rates staying unchanged.
What truly changed were the expectations for rate cuts this year. Before the conflict, the market was pricing in two 25 basis point cuts by 2026. After the conflict, this expectation shifted and prioritized pushing it back past September. The probability of no rate cuts at all in 2026 has roughly doubled. With rates remaining high for a longer period, Circle's Treasury reserves continue to generate returns. More returns mean more income, and more income means a higher stock price. A war breaks out, and a stablecoin issuer becomes a benefactor. This is something that never appeared in anyone's predictive model.
Background Supplement: The bearish logic that kept Circle's stock price at $49 in February was essentially a bet on rate cuts.
At that time, the market predicted that the Federal Reserve would cut rates multiple times in 2026, which would directly compress Circle's foreign exchange revenues. A rough estimate: at the current level of $79 billion in USDC supply, every 25 basis point cut would result in an annualized revenue loss of about $40 million to $60 million for Circle. Two rate cuts could wipe out nearly $100 million in top-line revenue before the year ends. The war rendered this calculation void overnight. Not because of Circle, but because the macro background that underlined its argument became impossible to reiterate.
How the Short Squeeze Began
While the rate story supports the stock price, the initial surge originated from position building.
Prior to releasing its fourth-quarter earnings report on February 25, about 17.8% of Circle's outstanding shares were sold short. Hedge funds had built substantial bearish positions. Their argument was that rates would eventually decline, domestic revenues would be compressed, and this company's income did not depend on the bottom line of interest rates. From a fundamental perspective, this was hard to refute.
Additionally, Circle reported an early year net income of $0.43, while the market's expectation was $0.16. Revenue reached $770 million, exceeding expectations of $749 million. On-chain USDC transaction volume grew nearly 12 trillion dollars quarter-on-quarter, a 247% year-over-year increase. Shorts were forced to cover. The stock surged 35% in a single trading day. According to a tenfold data study, hedge funds estimated a loss of $500 million on short positions that day. Then, the war triggered by the earnings report took the baton.
The Coinbase Issue
Here is an update on a part mentioned in the narrative.
Circle's loss for 2025 is a loss of $70 million, not a profit. The fourth quarter was outstanding, but this year is not the same. To understand the reason, you need to grasp its relationship with Coinbase, which is the most important yet overlooked fact about Circle's business.
When USDC was first launched in 2018, Circle and Coinbase formed a joint consortium to manage it. This consortium dissolved in 2023, granting Circle full control over USDC issuance. However, Coinbase retained the revenue source.
Coinbase takes 100% of the earnings from USDC reserves held on its platform, while all other earnings are split 50-50 with Circle. In 2024, this arrangement directly transferred $908 million of Circle's total allocation cost of $1.01 billion to Coinbase.
Rough calculations show that for every $1 of Circle's funds, 54 cents flow to a company that neither issues tokens nor manages reserves. At the beginning of 2025, Coinbase held 22% of the total USDC supply, up from 5% in 2022. The more USDC grows on Coinbase's platform, the more Circle pays out.
According to @q4cdn.com, the partnership is automatically renewed every three years, and Circle cannot unilaterally exit. Any outcome from the next renegotiation will directly impact Circle's profit margins. In the fourth quarter of 2025, the allocation cost alone reached $461 million, up 52% year-on-year.
The current $70 million net loss partly arises from $424 million of equity compensation resulting from the IPO, which makes the overall numbers appear worse than the actual business condition. However, the actual business still faces a structural cost problem that cannot be fully resolved in any interest rate environment.
The market views Circle as an infrastructure for pricing. However, the income statement shows it is an interest rate trading tool burdened by expensive allocation costs. Both viewpoints can coexist. They simply have different pricing logic, and presently, the market is paying for the "best version" of both.
Why This is Not Just a Macro Trade
The supply of USDC recently reached a historic high of $79 billion, while the broader crypto market has sharply fallen by 44% since October. This phenomenon is worth pondering. When the market declines, speculative assets typically drop. The growth of USDC is maintained as people are using it to transfer funds rather than merely viewing it as a speculative bet.
During the Iranian conflict, demand for USDC surged in the Middle East precisely because traditional banking became unreliable. When normal channels were blocked, people used it for cross-border transactions and remittances. This is how payment infrastructure performs under pressure: its use frequency increases rather than decreases.
Trading data confirms this. In February alone, USDC processed about $1.26 trillion in adjusted trading volume, compared to $514 billion for USDT. Tether (USDT) has a market capitalization of $184 billion, while USDC is at $79 billion. From the total supply perspective, the two cannot be compared. However, USDC's current liquidity has surpassed that of USDT.
According to @visaonchainanalytics, "sleeping supply" and "active settlement" are different concepts. The former indicates where people are storing dollars, while the latter shows which dollars are used when there is a need to transfer value.
Druckenmiller stated some relevant points this week. In a Morgan Stanley interview recorded on January 30 and published on Thursday, he predicted that the global payment system will operate on stablecoins for 10 to 15 days throughout the year, and referred to cryptocurrencies as "a solution looking for a problem."
This world’s most trusted macro investor divides this field into two: stablecoins are a foundational basis, while everything else is searching for reasons for existence. This framework provides support for the bullish outlook.
Deposits in Infrastructure
Tokenized assets have grown from about $1.5 billion at the beginning of 2023 to about $26.5 billion today. Many of these products (including BlackRock's tokenized treasury fund BUIDL, holding over $2 billion in assets) rely on USDC for subscription, redemption, and settlement processing.
Forecasts predict that the market will handle over $22 billion in transaction volume by 2025, mostly settled through USDC (only Polymarket). Visa currently supports over 130 stablecoin-linked cards across 50 countries globally, with an annual settlement volume of about $4.6 billion.
Circle is building the infrastructure beneath all this. The Circle Payments Network connects 55 financial institutions, processing an annualized volume of $5.7 billion, allowing banks and payment service providers to convert USDC across borders directly to local currencies.
Arc is Circle's own Layer-1 blockchain, designed to fully support institutional systems. This system does not rely on Ethereum or Solana for settlement infrastructure. While the current impact of Ethereum and Solana on revenues is negligible, both are forward-looking strategic layouts should rates decline.
The amount in the AI ecosystem is relatively small but structurally interesting. Data from Circle's global spending head, released in March, shows that in the past 9 months, AI entities completed 140 million payments totaling $43 million. Of those, 98.6% settled in USDC, with an average transaction of $0.31. Currently, there are over 400,000 AI entities with purchasing power. While the dollar amounts remain small, the trend is undeniable.
If AI entities need to make high-frequency, sub-grade payments for computing power, data access, and API calls to one another, they require tools for near-instant settlement at almost no cost. Circle has just launched Nano payment specifically addressing this need: supporting gasless USDC transactions as low as $0.000001, off-chain resources, and batch settlements. The test net currently supports 12 chains, including Arbitrum, Base, and built-in Ethereum.
This is what the market is willing to pay a stock price of $123 for: a company that embodies tokenized finance, AI entity commerce, cross-border payments, and prediction market centers, fully backed by regulatory strength under the GENIUS Act, with the CLARITY Act highly likely to pass before summer. Bernstein has set a price target of $190, and Clear Street at $136. The most optimistic price target from Wall Street's Harbor Global is as high as $280.
Unresolved Contradictions
Here, I want to candidly address a point that bullish proponents often overlook.
Circle's profitability relies on maintaining high interest rates. This is not a permanent condition. The Federal Reserve will eventually lower rates at some point. When that happens, the income from Treasury reserves supporting USDC will shrink, and Circle's interest income will also degrade.
Circle is aware of this. It has been expanding revenue from transaction fees, enterprise services, payment networks, and Arc—businesses that do not depend on the interest rate environment to operate. However, currently, these revenue scales are still small. Extracting funds’ earnings remains everything.
Thus, you will find these two logics coexisting within the same stock price, but they are not the same bet.
The foundational argument posits that USDC is evolving into a true means of payment. The pipelines are regulated, transparent, and eager to integrate deeply into traditional finance; this embedding is sticky regardless of interest rates. The argument is supported by data: digitized transaction volumes, integration, Druckenmiller’s framework, and Macquarie referring to stablecoins as the foundational layer of global financial infrastructure.
If this argument is correct, then Circle looks inexpensive under any interest rate environment because its potential market is the entire global payment system.
The interest rate trading argument, on the other hand, sees Circle as a leveraged bet on "higher and longer rates," and the stock price already reflects a scenario in which the Federal Reserve will never again anticipate rate cuts. If this is the main driver of price, then every point the Federal Reserve lowers rates in the future becomes a resistance, as the stock price has already overdrawn the fundamentals under normalized rates.
Both viewpoints have been priced in. The war has made it difficult to discern which of these the market is really buying.
This may be the most useful point in understanding CRCL (Circle’s stock code) right now. The focus is not on whether it will rise to $190, but on whether you are buying "infrastructure," a "storytelling Treasury that has become a distributor." The former is a long-term position; then it may collapse in an instant if Powell changes his mind.
Currently, the value that keeps both sides alive in their struggle is significant. The dollar is accomplishing the most difficult task it must. And in the gap between the two scenarios, lies the true hidden nature of this company—it figured out how to create dollar-denominated internet currency, but now it needs to figure out how to survive the moment when the dollar no longer produces a 5% yield.
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