Three Reasons Why Circle’s Stock Is Under Pressure

Shares of Circle Internet Group have lost roughly a quarter of their value over the past week, pressured by three unresolved issues that appear to challenge the core assumptions behind the company’s investment plans.

It opened on March 24 at $126, crashed 20% closed at $101, but staged a brief recovery the next session before falling again over the next two days to end the week at $93, with three of the past four sessions closing in the red, according to historical figures. facts on Google Finance.

The drop from last Tuesday came after two bad news arrived the same day: a Senate bill that could ban the returns Circle hands out to stablecoin holders, and an announcement from its rival, Tether, that it hired a major accounting firm auditing its reserves for the first time.

Weeks before the drop, Circle posted double-digit profits, which soared about 60% since the fourth quarter earnings report. Analysts were also generally bullish, with Clear Street raising its price target on Circle to $152 earlier this month.

But the Senate rulings on a possible yield ban and the Tether audit announcement remain unresolved, and both appear to have continued to weigh on stocks in subsequent sessions.

The draft text is expected will be released publicly this week, ahead of a Senate Banking Committee hearing scheduled for the second half of April, a deadline that lawmakers have said the bill need to clean up to prevent reforms from stalling until after the mid-term elections.

Under pressure

Circle’s stock slide points to broader uncertainty about Circle’s business model, and whether the factors behind the initial decline are temporary headwinds or something more structural, analysts said. Declutter.

“Passive yield is probably one of the biggest reasons retail users on Coinbase are holding USDC,” Siwon Huh, researcher at Four Pillars, told me. Declutter. “Replacing this with activity-based incentives would require building an entirely new user engagement structure.”

Activity-based reward programs are structurally different from passive yield in that they require ongoing product investment, and returns diminish as user engagement declines, Huh explains.

If the Senate’s passive returns ban holds, the transition to activity-based pay could take at least a year and cost Circle some of its retail user base in the process, he noted.

Still, the fact that USDC circulation is reaching record levels despite the broader market decline suggests that holders are being attracted to it as a payment instrument, which could mean the stock’s decline overstates the true risk, Huh said.

If the yield ban holds, Circle’s USDC could lose “its most important carry trade,” Dominick John, an analyst at Zeus Research, told me. Declutternoting how his model would then shift to a “use-driven economy.”

Activity-based rewards “can drive flow,” but without a “revenue engine” it could mean “lower margins and a weaker balance sheet,” he said, estimating it would take two to four quarters for the transition to reset and up to 18 months to stabilize.

In addition to the yield ban, the Tether audit poses a separate competitive risk.

John estimates that a successful sign-off by Deloitte could “put at risk” 5 to 15% of USDC’s institutional market share in the near term, mainly due to yield-independent flows that could change in terms of liquidity and perception.

Anything larger will require “consistent evidence of long-term reserves,” he noted.

The consensus surrounding the CLARITY Act’s passive yield ban “makes it virtually impossible for stablecoin issuers to operate a traditional bank-like deposit and profit sharing model,” and this has become a key factor in limiting Circle’s structural upside, Ryan Yoon, senior analyst at Tiger Research, told reporters. Declutter.

Yet Circle’s strength lies in its deep integration with institutional finance and the broader B2B ecosystem, Yoon said.

Circle is “already firmly entrenched in the market” and has “sufficient financial headroom to absorb regulatory uncertainties,” making the current slump difficult to interpret as a definitive decline in company value, Yoon said.