Circle’s 48% stock rout will get worse with rate cuts and slow growth, analysts say

Falling interest rates are usually a boon to risky assets like stocks and crypto.

But for Circle, the $38 billion firm behind the USDC stablecoin, it’s potentially the opposite.

Future interest rate cuts from the Federal Reserve could wreak havoc on the stablecoin issuer’s revenue, according to Omar Kanji, a partner at crypto venture firm Dragonfly.

A 1% cut in interest rates will slash Circle’s revenue by a whopping $618 million, a 23% drop, Kanji said in a X post.

The reason? A large part of Circle’s revenue comes from the short-dated government bonds it holds to back the $65 billion worth of USDC in circulation, Kanji argued. When the Fed lowers interest rates, the return on those bonds falls in step, squeezing Circle’s bottom line.

To offset the impact, Circle needs to have the USDC supply grow by $28 billion, or 44% of its current supply, to stay neutral, Kanji said.

The warning comes as the CME FedWatch tool shows a 92% chance of an interest rate cut in September following a weak US jobs report on August 1, which suggested that the impact of President Donald Trump’s tariffs haven’t been as bad as analysts feared.

US Treasury Secretary Scott Bessent has urged the Fed to cut interest rates by half a percent next month.

Shares in Circle have cooled in recent weeks as the firm exits a honeymoon period following a roaring initial public offering. Its stock has sunk some 48% since hitting an all-time high of over $299 in June.

Slow growth?

Looming interest rate cuts aren’t the only thing weighing on Circle’s prospects.

Mizuho Securities equities researchers said in a Wednesday note to clients that in addition to interest rate cuts, Circle’s stock faces headwinds from slower than expected USDC growth and growing distribution costs, The Block reported.

Mizuho analysts maintained an underperform rating for the stock, and gave a base case price of $84 through 2027. That’s 45% lower than Circle’s last closing price of around $153.

In a note to investors on Wednesday, Bernstein analysts also noted that Circle faces competition from not just Tether, the world’s largest stablecoin issuer, but also from a growing batch of new competitors muscling into the market, such as banks and payment firms.

Even so, Bernstein expected that the firm’s stock price will eventually surge by over 50% to $230 by 2027.

To be sure, Circle’s first earnings report, published on August 12, paints a more optimistic picture.

It showed that USDC in circulation grew 90% year-over-year to more than $61 billion, while revenue and reserve income grew 53% in the same period to $658 million.

Tether, the largest stablecoin issuer, only grew the supply of its USDT stablecoin by 42% over the past year, per DefiLlama data.

Circle did post a $482 million loss, however, which it attributed to the costs incurred from its June IPO.

Circle has also pursued new ways to juice its revenue in recent months.

In April, the firm unveiled the Circle Payments Network, a way for it to compete in the cross-border payments sector by leveraging USDC and EURC, Circle’s Euro-pegged stablecoin, for international transfers.

On August 12, Circle also announced plans to build its own stablecoin focused blockchain called Arc.

Circle didn’t immediately return a request for comment.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.