Circle, the issuer of the USDC stablecoin, has seen its stock price surge by approximately 45% in less than two days following the release of its fourth-quarter earnings report on Wednesday. This dramatic increase comes after a significant 80% decline from its peak last year.
While Circle reported impressive growth in the supply of USDC, analysts suggest that the stock’s rapid ascent was largely influenced by a crowded short position among hedge funds rather than the company’s financial performance. Markus Thielen, founder of 10x Research, noted that the substantial movement was more about investor positioning than the earnings figures themselves.
According to Thielen, hedge funds had established considerable bearish bets ahead of the earnings announcement, leading to a high likelihood of a short squeeze. He estimated that these funds incurred losses of around $500 million in a single trading day as the stock price climbed.
Despite the positive headlines from Circle’s earnings report, a closer examination reveals a decline in profitability. The USDC stablecoin’s circulation grew to $75.3 billion, marking a 72% increase year-over-year and surpassing the growth of its competitor, Tether’s USDT. Revenue from reserve income, primarily derived from U.S. government debt backing USDC, rose by 58% to $2.64 billion. However, distribution costs rose even more sharply, increasing by 66% to $1.66 billion, highlighting the challenges of incentivizing partners and platforms for broader adoption.
As a result, Circle transitioned from a net profit of $156 million in 2024 to a loss of $70 million, emphasizing the difficulties in the stablecoin market. Harvey Li, founder of Tokenization Insight, remarked, “Stablecoin issuance is a tough business, despite scaling.”
Nonetheless, Circle exceeded analyst expectations, prompting Japanese investment bank Mizuho to raise its price target for the stock from $77 to $90. The bank cited a boost from prediction markets and growing interest in “agentic commerce,” where autonomous AI agents utilize Circle’s USDC for transactions. Mizuho maintained a neutral rating on the stock, cautioning that potential decreases in interest rates might impact reserve income.
Analysts Dan Dolev and Alexander Jenkins confirmed that Circle’s results surpassed expectations for both revenue and profit, alleviating investor concerns after a period of pessimism. Management pointed to platforms like Polymarket as significant contributors to recent USDC growth, highlighting their rapid transaction activity and practical applications.
Furthermore, the analysts noted that Circle’s executives emphasized the role of USDC in agentic commerce, envisioning it as a potential default currency for AI agents operating in digital marketplaces. A variety of products are being developed on the USDC framework, with trading and prediction platforms emerging as key examples of high-frequency use cases.
Mizuho now anticipates an average circulation of USDC to reach approximately 123 million by 2027, projecting reserve income of around $3.7 billion and EBITDA of $916 million, assuming interest rate cuts align with market expectations. By applying a 24x EBITDA multiple, which is a premium compared to peers like Visa, Mastercard, Coinbase, and Robinhood, the analysts arrived at their revised price target of $90.
Circle's stock has surged nearly 50% following a fourth-quarter earnings report, driven more by a short squeeze than strong financials. Despite impressive growth in USDC circulation, profitability has declined, raising questions about the challenges in the stablecoin market.