Circle Stock Price Forecast as US Bond Yields Jump and USDC Supply Falls
Key Insights
- Circle stock has pulled back in the past few weeks.
- The supply of USDC has dropped from $80 billion to $74 billion.
- US bond yields have continued rising after the Fed decision.
Circle Internet Group stock remained under pressure this week as investors weighed the impact of slowing USDC growth against a favorable interest-rate environment. CRCL shares traded near $80, down roughly 42% from their May peak.
While rising U.S. Treasury yields could support Circle’s revenue model, slowing USDC circulation and growing competition across the stablecoin sector continue to weigh on sentiment.
Rising Bond Yields Support Circle’s Revenue Model
US bond yields are rising today as investors react to the latest Federal Reserve interest rate decision, which happened on Wednesday this week.
The bank decided to leave interest rates unchanged between 3.50% and 3.75%, with officials signaling that they are comfortable hiking interest rates in the next meetings. They cited the recent economic data that showed that inflation remained at an elevated level, with the headline Consumer Price Index (CPI) rising to 4.2% and the PPI moving to 6.2%.
Market analysts are now predicting that the Fed will likely hike in either the September or the October meetings. Such a move will push inflation to between 3.75% and 4%.
These expectations explain why US bond yields have resumed their uptrend today. Data shows that the two-year bond yields jumped to a multi-year high of 4.20%, much higher than the year-to-date low of 3.37%. The other key bonds, like the 30-year and 5-year, continued rising as well.
These numbers are important for Circle Internet Financial because of its business model. Circle uses a similar business model to banks, where it takes customers’ cash and invests it. The only difference is that it can only invest in short-term US government bonds, while banks have the liberty to invest in various assets like loans.
Therefore, Circle’s business makes the most money when the USDC supply is rising and when bond yields are rising.
USDC Supply Has Stalled
The main challenge facing Circle is that the supply of USDC coins in circulation has continued falling this month. According to CoinMarketCap, the supply dropped to $74 billion today from the all-time high of $80 billion. This retreat happened even as the total supply of USDC in circulation jumped to a record high of $316 billion this year.
USDC supply | Source: CMC
One of the main reasons behind the USDC sell-off is the ongoing performance of Bitcoin and other altcoins. Data shows that volume in most DEX and CEX protocols has dropped, lowering the demand for the token.
Another possible reason is the growing competition in the industry, with tokens like PYUSD and RLUSD competing to gain market share. MoneyGram and SoFi have also launched their stablecoins.
There is a possibility that Circle’s revenue growth will slow in the second quarter. According to Yahoo Finance, the estimated revenue is $728 million, up by 10% YoY. The annual revenue is expected to grow by 11% this year.
Analysts are largely optimistic about Circle, with H.C Wainwright and Needham having the highest target of $150
Circle Stock Price Technical Analysis
CRCL stock chart | Source: TradingView
The daily chart shows that the CRCL share price has slipped in the past few weeks. This retreat happened after it formed a double-top pattern at $135 and a neckline at $84. A double-top signals that investors are afraid of placing bids above that resistance level.
The stock has now slipped below the neckline at $84 and then retested it. It has also dropped below all moving averages and is slowly forming a bearish flag pattern.
Therefore, the stock will likely continue falling, potentially to the next key target level of $50, its lowest swing on February 5. The bearish outlook will be invalidated if the stock moves above the key resistance of $100. If this happens, it will surge to the double top at $135.
The post Circle Stock Price Forecast as US Bond Yields Jump and USDC Supply Falls appeared first on The Market Periodical.
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