U.S. IPO heavyweight Circle plunges… down 74% from June peak

Circle plunges 74% from its peak

Investor sentiment sharply cooled amid global macro headwinds

Rate cuts and intensified competition are also weighing factors

New ventures like Acr likely to determine a rebound

The dollar stablecoin issuer Circle's share price continued to decline, falling back to its early listing price. It had been highlighted as this year's biggest IPO candidate amid hopes such as the possible passage of the U.S. stablecoin law, the "Genius Act," but it has been criticized for not meeting investor expectations.

On the 2nd (local time), Circle closed on the New York Stock Exchange at $77.44, up 1.98% from the previous day. Although it closed higher that day, the figure represents a 74.1% drop compared with the all-time high of $298.99 recorded on June 23.

Earlier, Circle went public on the New York Stock Exchange on June 5 at $69.00. At the time of listing, expectations for the U.S. IPO market were high amid then-President Donald Trump's pro-crypto policies and hopes for passage of the Genius Act.

However, after struggling for months following the listing, the stock hit an intraday low of $64.20 on the 20th of last month—close to the $64 low recorded on the first day of listing. Hong Seong-wook, a researcher at NH Investment & Securities, explained, "(Circle's share price) was overly priced in initial expectations, and as the market entered an overall adjustment phase, the decline widened."

Strong third-quarter results did not prevent the stock weakness. Circle recorded revenue of $740 million and net income of $214 million in the third quarter. Revenue and net income increased about 65.9% and 300%, respectively, year-on-year. Earnings per share (EPS) was $0.64, well above Wall Street's estimate of $0.19.

Analysts say multiple factors contributed to Circle's stock underperformance despite strong results. First, global macroeconomic uncertainties triggered by a U.S.-China tariff war, concerns about yen carry trade liquidations, and a potential U.S. federal government shutdown in the past one to two months acted as negative factors.

U.S. rate cuts also negative

Risk-off sentiment that spread through asset markets added fuel to the downtrend. In particular, the crypto market has shown a steeper decline than global equities due to ongoing liquidity shortages following massive liquidations on October 10.

Specifically, Bitcoin (BTC), regarded as the flagship crypto asset, is down about 20% from its peak. Major altcoins such as Ethereum (ETH) have seen larger declines than Bitcoin. Worsening crypto investor sentiment led to concerns about weaker demand for stablecoins that serve as cash within the market, which analysts say negatively affected Circle as well.

U.S. Federal Reserve rate cuts, which could be positive for the crypto market, are also a negative for Circle. Circle holds a large amount of U.S. Treasuries as reserves for USDC. If rates fall, returns on the Treasuries that Circle holds decline, which in turn worsens Circle's profitability. Researcher Hong said, "Most of a stablecoin company's revenue comes from the bonds accumulated to issue stablecoins," adding, "Rate cuts can directly lead to revenue declines."

"Concerns over USDC market share decline"

Intensifying market competition is also cited as a factor weakening sentiment. Reports that global fintech firms and major exchanges are entering or preparing to enter the dollar stablecoin business have raised concerns that USDC's market share could be challenged.

In fact, U.S. investment bank Compass Point downgraded Circle to a 'Sell' in July, citing intensified stablecoin competition and the possibility of overvaluation. Hong said, "If the Genius Act is enacted, many financial firms and fintech companies could issue stablecoins," but added, "(However) at present, concerns that USDC will lose market share are an overinterpretation."

The market sees Circle's new businesses as determining whether the stock can rebound. Circle is currently pursuing revenue diversification through new businesses such as the USDC-optimized blockchain network 'Acr' and distribution infrastructure 'CPN (Circle Payments Network)'. Acr has already released a test version and is scheduled for official launch next year.

Hong said, "Considering the case where Tron (TRX) grew into a Tether (USDT)-centric blockchain and formed a market capitalization of $26 billion, Acr could also contribute to Circle's corporate value," adding, "The performance of the Acr token could act as a positive catalyst for Circle's stock."