Author: Thejaswini M A

Translation: Block unicorn

Introduction

There is a type of company that profits when the global situation worsens. Defense contractors, oil giants, gold mining companies. These are obvious examples, as these companies' business models are built on instability and factor that instability into their pricing.

Circle should not belong to this category. Its token value is always pegged at 1 dollar, by design. Stability is at the core of its product. However, Circle’s stock price has soared from $49.90 on February 5 to about $123 today, more than doubling in just five weeks. Meanwhile, the entire cryptocurrency market is still down 44% from its peak in October.

Due to the increasingly turbulent global situation, a company designed to maintain price stability has become one of the hottest trades in the market.

I want to explain how it works, why it is more interesting than it appears, and the difference it tells us between the essence of Circle and the products that the market is currently paying for.

What is Circle (of course, we will discuss this later)

Setting aside branding, payment concepts, and infrastructure, the essence of Circle is: it holds U.S. Treasury bonds. Every dollar of USDC in circulation is backed by a dollar's worth of short-term government bonds. The interest from these bonds belongs to Circle. This accounts for about 90% of the company's quarterly revenues. Its business model is not complicated: Circle is a money market fund that issues stablecoins.

This means that Circle's income depends on one key factor: the federal funds rate. When rates are high, Treasury yields are high, allowing Circle to earn more whenever it issues a USDC. When rates are low, revenue decreases. Everything else is secondary.

Here’s a series of events that led the stock price to rebound 150% from its lows in February.

Since February 28, the Iran conflict has pushed oil prices up by about 35%. Oil prices surpassing $100 signal inflation concerns, and inflation concerns mean that the Fed lowering rates would be seen as reckless. The decision to hold interest rates steady on March 18 was actually not surprising. Even before the outbreak of war, the Chicago Mercantile Exchange's (CME) FedWatch had shown a probability of holding rates steady at over 90%. The real impact of war is on the market dynamics for the year. Before the conflict, the market expected two rate cuts in 2026, each by 25 basis points. After the conflict began, the number of expected cuts dropped to one, not expected until after September. The probability of no rate cuts at all in 2026 almost doubled. With rates likely to remain high for an extended period, Circle's Treasury yield continues to rise. Higher yields mean more income. More income means higher stock prices. War erupts, yet a stablecoin issuer benefits from it. This was completely unexpected by everyone.

As a backdrop, Circle's stock price dropped to $49 in February due to pessimistic expectations, essentially betting on rate cuts. The market expected the Fed would cut rates several times in 2026, which would directly compress Circle’s reserve income. Rough estimates suggest that with the current USDC supply of $79 billion, each 25 basis point cut would reduce Circle’s annual income by $40 million to $60 million. Two cuts would reduce its income by nearly $100 million by year-end. However, the war overnight changed this expectation. This was not because there was a change within Circle itself, but because the macroeconomic context originally thought to weaken this argument became inapplicable.

How the squeeze began

While the interest rate narrative kept the stock price high, the initial explosive rise came from positioning.

Before the fourth quarter earnings report was released on February 25, about 17.8% of Circle’s shares were shorted. Hedge funds built up significant short positions. Their logic was that rates would eventually fall, reserve income would reduce, and the company lacked any revenue guarantees not dependent on interest rates. Fundamentally, this argument seemed reasonable. Subsequently, Circle reported earnings per share of $0.43, exceeding the market consensus of $0.16. Revenue was $770 million, above the expected $749 million. On-chain USDC trading volume approached $12 trillion in the quarter, a year-on-year increase of 247%. Short sellers began to cover. The stock price soared 35% in one trading day. According to 10x Research, hedge funds lost about $500 million on short positions in one day. Afterward, the short war intensified, continuing to benefit from the positive earnings.

The Coinbase issue

Here’s the portion that did not enter the bullish narrative.

Circle reported a net loss of $70 million for 2025, not a profit. The fourth quarter was outstanding, but the annual performance was poor. To understand the reasons behind this, one needs to comprehend the Coinbase agreement, which is the most important yet easily overlooked aspect of Circle's business.

When USDC was initially launched in 2018, Circle and Coinbase formed a joint alliance to govern it. This alliance was dissolved in 2023, and Circle took full control of USDC issuance. However, Coinbase retained a portion of the revenue share.

Coinbase takes 100% of the reserve revenue from USDC held on its platform and splits the rest equally with Circle. In 2024, this arrangement directed $908 million of Circle's total distribution costs of $1.01 billion directly to Coinbase. About 54 cents of every dollar earned by Circle flows to a company that neither issues tokens nor manages reserves. By early 2025, Coinbase held 22% of the total USDC supply, up from 5% in 2022. The more USDC grows on the Coinbase platform, the more revenue Circle earns.

This agreement automatically renews every three years, and Circle cannot unilaterally exit. The outcome of the next renegotiation will directly impact Circle's profit margins. By the fourth quarter of 2025, distribution costs alone are expected to reach $461 million, a 52% increase year-on-year. The $70 million net loss for the year is partly due to a one-time equity compensation charge of $424 million post-IPO, which makes the apparent loss worse than actual business conditions. However, Circle's core business continues to face structural cost issues that cannot be fully resolved by any interest rate environment.

The market is currently pricing Circle as infrastructure. The income statement shows it is an interest rate trading company, but with high distribution costs. Both viewpoints can coexist; it’s just a difference in pricing. Currently, the market is paying for the best versions of both perspectives.

What makes this more than just a macro trade?

The USDC supply recently reached $79 billion, a historic high, while the entire cryptocurrency market has declined 44% from its peak in October. This divergence warrants our attention. Speculative assets typically decline when the market drops. The reason for USDC's continuous growth is that people use it to transfer funds rather than hold it as a speculative tool. During the Iran conflict, demand for USDC surged in the Middle East precisely because the traditional banking system became unreliable. When normal payment channels were disrupted, people used USDC for remittances and cross-border transfers. This is how payment infrastructure performs under pressure: increased usage rather than decreased.

Trading data also corroborates this. In February alone, the adjusted trading volume of USDC reached approximately $1.26 trillion, while USDT’s trading volume was $514 billion in the same period. Despite Tether's market cap still being as high as $184 billion and USDC's market cap being only $79 billion. In terms of total supply, the gap is significant. However, USDC's trading volume has now surpassed that of USDT.

Dormant supply and active settlement are two different concepts. The former refers to where people store funds, while the latter refers to the funds people use when they need to transfer value.

Stan Druckenmiller made an insightful comment this week. In a Morgan Stanley interview recorded on January 30 and released earlier, he indicated that he expects the global payment system will operate based on stablecoins in the next 10 to 15 years and stated that cryptocurrencies are "solutions searching for problems." This authoritative macro investor sharply divides the cryptocurrency field: stablecoins are an inevitable infrastructure, while everything else is still searching for a reason to exist. This sentiment is the theoretical basis for being bullish on cryptocurrencies.

Infrastructure bet

Tokenized assets have grown from about $1.5 billion at the start of 2023 to about $26.5 billion today. Many of these products, including BlackRock's tokenized Treasury fund BUIDL (which currently holds over $2 billion in assets), rely on USDC for subscriptions, redemptions, and settlement processing. The prediction market is expected to handle over $22 billion in trading volume in 2025, mainly settled in USDC. Just Polymarket alone.

The scale of tokenized assets has grown from about $1.5 billion at the start of 2023 to today’s approximately $26.5 billion. Many of such products, including BlackRock's tokenized Treasury fund BUIDL (which currently has over $2 billion in assets), rely on USDC for purchasing, redeeming, and settling. The forecasted trading volume for the market in 2025 exceeds $22 billion, with most settled in USDC. Just Polymarket alone has achieved this goal. Visa currently supports over 130 stablecoin-linked cards in 50 countries, with an annual settlement volume of about $4.6 billion.

Circle is also building the infrastructure beneath all of this. The Circle payment network connects 55 financial institutions, achieving an annual transaction volume of $5.7 billion, allowing banks and payment service providers to transfer USDC cross-border and exchange it directly for local currencies. Circle's proprietary Layer-1 blockchain Arc aims to fully support institutional levels. Its settlement infrastructure does not rely on Ethereum or Solana. While Ethereum and Solana currently lack the scale to impact revenue, both are strategic investments for future potential interest rate decreases.

The AI layer, while small in volume, is structurally significant. Circle's global marketing director recently noted that AI agents completed 140 million payments totaling $43 million over the past nine months. Of those, 98.6% of the transactions were settled in USDC, with an average transaction amount of $0.31. Currently, over 400,000 AI agents possess purchasing power. Although the amount is still small, the development trend is undeniable. If AI agents need to make payments to each other at extremely high frequency and low amounts (under $0.25) for computation, data access, and API call fees, they will require a payment method that can settle instantaneously and at zero cost. This is precisely why Circle launched Nanopayments. Nanopayments provide USDC transfers with fees as low as $0.000001, cash settled off-chain in batches. The test net currently supports 12 blockchains, including Arbitrum, Base, and Ethereum.

This is why the market is currently willing to pay Circle $123 per share. This company is at the core of tokenized finance, AI agent commerce, cross-border payments, and prediction markets, benefiting from favorable regulations under the GENIUS Act and the potential passage of the CLARITY Act before summer. Bernstein has set a target price of $190, Clear Street has set a target of $136, while Wall Street's most optimistic firm for Circle, Seaport Global, has set a target price of $280.

An Unshakeable Tension

Here, I want to candidly discuss a point that bullish perspectives often overlook.

Circle's profitability depends on a high interest rate environment. But this is not a long-term solution. The Fed will eventually cut rates. When that happens, the Treasury yields supporting USDC will decline, and Circle's interest income will also decrease.

Circle is well aware of this. It has been expanding its trading fees, enterprise services, payment networks, and Arc among other lines of business. These operations do not rely on the interest rate environment. However, currently, these revenues are minimal. Reserve income remains critical.

So you have these two scenarios sitting at the same stock price, but they are not the same investment.

The infrastructure argument contends that USDC is becoming a true payment pipeline. It is regulated, transparent, and increasingly integrating into the traditional financial system, with its impact unaffected by interest rate fluctuations. This argument is supported by data such as trading volumes, institutional integration, Druckenmiller's discourse, and Macquarie calling stablecoins the foundational layer of global financial infrastructure. If this argument holds true, then Circle's valuation appears quite low, as its potential market encompasses the entire global payment system.

The rate trading argument posits that Circle is a company betting on long-term rising interest rates, and its stock price has already reflected the expectation that the Fed is no longer likely to cut rates dramatically. If this argument drives the stock price, then every percentage point of the Fed's eventual rate cut will act as resistance, while the current stock price has already surpassed the level supported by fundamentals under normal rate conditions.

Both viewpoints are already reflected in the price. The war makes it difficult for the market to discern which side it leans toward.

Currently, the most important point about understanding CRCL may not be whether it can rise to $190 but whether you are investing in infrastructure or in a more adeptly marketed Treasury yield substitute. The former is suitable for long-term holding, while the latter will become immediately obsolete the moment Jerome Powell changes his mind.

Currently, this war allows both to survive. Oil prices play a crucial role, and the company's true value lies somewhere in the blank space between these two scenarios: it has found a way to create dollar-denominated internet currency, but now must think about how it will survive when dollar yields no longer reach 5%.