Summary
- Stablecoin company Circle said its shares surged 109.52% over the past month, more than doubling.
- It said expectations for Circle’s interest income increased on the back of higher U.S. Treasury yields and prospects of expanded Treasury issuance if the war drags on.
- It said investor sentiment is improving as global investment banks raise Circle’s price targets and issue 'strong buy' recommendations.
Forecast Trend Report by Period
Big boost from rising U.S. Treasury yields
Wall Street calls it a ‘strong buy’
Shares of stablecoin company Circle are rebounding sharply. After plunging 76% from last July through early last month and extending a months-long downtrend, the stock has surged more than twofold over the past month.
According to the financial investment industry on the 17th (local time), Circle’s shares on the Nasdaq jumped 109.52% over the past month. The stock, which stood at $263 in June last year, slid at one point to $55 in early last month.
The rally is seen as driven by a combination of strong results and improving industry outlook. Circle said on the 25th of last month that it posted fourth-quarter revenue of $770 million for last year, beating the market consensus ($747 million) by 3%. That was up 77% year on year. Then, with the outbreak of the Iran war on the 27th of last month, the stock’s advance accelerated further. The war pushed up international oil prices, heightening inflation concerns, and brought into focus expectations that the U.S. central bank (Fed) would delay rate cuts beyond what markets had anticipated. As of that day, the 2-year U.S. Treasury yield rose to 3.659% annually from 3.475% at the start of the year.
Circle primarily uses short-term U.S. Treasuries and cash as backing assets for its dollar-pegged stablecoin, USDC. The structure is to buy Treasuries with stablecoin reserves held by investors and earn income from the interest generated. When U.S. Treasury yields rise, Circle’s interest income increases accordingly.
Expectations that a prolonged war could prompt the U.S. government—requiring massive funding—to ramp up Treasury issuance also supported the shares. Hopes also grew that the U.S., seeking to secure demand for Treasuries, could roll out deregulation measures for the stablecoin industry rather than tighter rules.
Global investment banks (IBs) have also been raising Circle’s price targets in succession. Baird on the 17th lifted its target from $110 to $138. On the 16th, Clear Street raised its Circle target from $92 to $136 and upgraded its rating from “hold” to “strong buy.” Mizuho Bank has also raised its price target for Circle twice so far this month.
By Sun Han-gyeol always@hankyung.com
Korea Economic Daily
hankyung@bloomingbit.ioThe Korea Economic Daily Global is a digital media where latest news on Korean companies, industries, and financial markets.
