What happens if Strategy is forced to sell?
Summary Circle Internet Group is the premier digital dollar play, but the stock is overheated and trades at a steep 90x earnings multiple. Q2 results showed strong top-line growth, but profitability concerns and thinning margins raise questions about CRCL's ability to scale efficiently. Short-term momentum remains intact, with a potential move to $165–170, but long-term investors need to see improved margins and diversified revenue. Circle's reliance on interest income, costly partnerships, and high expectations leaves little margin for error; volatility and sharp swings are likely. Elevator Thesis Circle Internet Group, Inc. (CRCL) stock has run red-hot over the past couple of months, after one of the most explosive IPO performances in recent memory. It's clearly the premier way to play digital dollars, but the stock's gotten incredibly overheated. Also, it's Q2 showing exposed tiger unit economics, with gross profits down, and a relatively inspiring margin guide. Throw in its reliance on interest income, and a slight shortfall in USDC-circulation expectations, and the "scale effortlessly" narrative gets a lot tougher. More importantly, with the stock trading at 90x earnings, a lot must go right; growing into those multiples is a tough ask, especially over the long run. That said, the near-term setup still has room to run, with shares holding the $150 mark, momentum stabilizing, and regulatory tailwinds igniting another sharp move higher. Over the short term, a decisive move towards 165-170 seems a reasonable magnet, with upside skewed by volatility. For those with a long-term investing mindset though, will need to see a lot more from Circle. Circle's Role in Crypto: Issuing the Digital Dollar Circle Internet CEO Jeremy Allaire (TheStreet.com) Circle is essentially the "digital mint" behind the popular USD Coin (USDC-USD), the second-largest cryptocurrency stablecoin after Tether (USDT-USD). It's already zoomed past the $60 billion mark in market cap, locking over 25% of the entire stablecoin market, second only to Tether. Simply put, the USDC is basically a digital dollar that's always worth $1. Think of it like an online casino chip pegged to real cash usable at every vendor that accepts crypto. Circle's primary role in all this is issuing and managing USDC (along with a smaller Euro Coin), holding equivalent real dollars in its reserve. Why is USDC a big deal? In the volatile crypto world, it's perhaps the closest thing to cash you can count on. Pegged to the dollar, USDC moves swiftly with virtually zero transaction costs. That ease and cost-effectiveness make it the go-to for traders and crypto businesses alike. How does Circle make money? To put it plainly, it earns interest on all those dollars sitting in its vaults. Like a traditional bank investing its deposits, Circle invests USDC reserves (primarily in short-term U.S. Treasuries) to pocket handsome interest income. In fact, that's Circle's lifeblood, where last year it effectively pocketed virtually the entirety of its $1.68 billion revenue from interest on USDC reserves. So Circle is effectively running a massive money-market crypto fund where potentially higher interest rates or more USDC in circulation result in greater profits. Moreover, since its public debut in June, Circle's arguably the hottest stock on the market. Priced at $31, Circle stock opened at $69 and then closed the show with a bang, with an $83 price tag, a jaw-dropping 168% pop from its offer price. Circle's IPO is perhaps the most explosive in recent memory, but that was just the beginning, as within a few short weeks, the stock racked up all-time highs near $300. A big part of that frenzy was about timing. Being behind USDC was one thing, but its IPO was backed by a wave of regulatory clarity. In Washington, both the STABLE Act and GENIUS Act gained bipartisan support, with the latter becoming law by Q2. Hence, with a robust federal framework for stablecoins, Circle and its peers got a giant green light for their business models. A Strong Start for the Crypto Stock, but Profitability Questions Linger Post-IPO USDC by Circle (Matcha Blog) Circle's Q2 earnings print was mostly strong on the top-line, but profitability concerns continue to weigh down its bull case. It posted $658 million in sales, a superb 53% bump from a year ago, while comfortably beating analyst estimates ($645 million). That growth was led by a gusher of interest income on USDC reserves, surging close to 50% as interest rates remained elevated and USDC circulation was mostly impressive. By the end of June, USDC supply hit $61.3 billion, up a powerful 90% YOY, showing healthier adoption across crypto platforms and institutional partners. Also, on an adjusted basis, Circle booked $126 million in EBITDA, up over 50% YOY, along with its adjusted EPS crushing expectations at $1.02 compared to the $0.29 expectation. Upbeat over Q2 results, CEO Jeremy Allaire emphasized that USDC is moving beyond pure trading into broader financial use cases. Perhaps the biggest highlight was the launch of the Circle Payments Network (CPN) in May, targeting financial institutions. According to Circle's management, more than 100 banks and fintechs are in the pipeline already, underscoring incredible demand for USDC in revolitionizing cross-border transfers. Also, Circle expanded its partnerships with key players like Binance, OKX, FIS, and Fiserv, moves that give greater exposure to USDC across the globe. In addition to that, Circle's management unveiled a long-term bet in Project Arc, which is a robust new in-house blockchain network developed for high-speed stablecoin transactions. The long-term infrastructure bet could add new layers to Circle's growth story, helping it scale even quicker. Nevertheless, beneath the surface, Circle's profitability issues remain well and truly a concern, which complicates the bullish thesis. Though it posted a solid beat on the top-line, its GAAP loss of $4.48 per share blew past expectations in the wrong direction ,with analysts expecting a modest $0.34 profit. The culprit was a whopping $424 million in stock-based compensation linked to Circle's June IPO. Management chalked it up as essentially a one-time hit, but it did push losses to roughly $482 million. Strip that cost away ,and it makes the loss vanish, but it doesn't solve the bigger issue of company margins thinning out. In the previous quarter, Circle's cost of sales formed roughly 73% of total sales. However, that number has surged to over 138% in Q2, which highlights serious concerns over the company's dwindling unit economics. A big part of its weakening operational leverage is its dependency on interest income and costly channels that continue pushing distribution costs higher. Consequently, Circle guided to a 37% RLDC margin, down from 40% last quarter and 42% a year ago. The slide highlights a structural squeeze, where Circle's costly partnerships are cutting deep into its margins. Circle is dependent on partners like Coinbase to distribute USDC, but it also has to share its sales. Hence, it's giving into the fintech trap where third parties feed into margins. Moreover, USDC's core growth showed a slight wobble too. Though USDC circulation jumped 90% YOY, it did come shy of expectations by 1% . For a stock that's in hyper-growth mode, even a small miss can rattle confidence. In short, Q2 wasn't all rosy as the headline numbers suggested. Circle is growing, but not without its fair share of pains, which reminds investors of the perils in scaling in the fintech space. A Word on the Recent Share Offering Safe to say, Circle raised a few eyebrows this month, after announcing a 10 million share secondary offering, just a couple of months after a blockbuster IPO. Though the headline suggested a hefty capital infusion, the details apparently told a different story. Roughly eight million of those shares were being sold by insiders and early backers, with basically just two million new shares being issued by the company. In other words, most of the proceeds from the sale were going to existing stakeholders, not exactly Circle's balance sheet. Naturally, Circle talked about the move being a way to boost liquidity and allow long-time investors to diversify. Fair enough, and it's true that post-IPO selling isn't unusual. However, the timing and scale weren't subtle, considering the offering was priced at $130, a discount to the then-$150 stock price. Though it isn't inherently bearish, the secondary sale could potentially be perceived as the early backers viewing it as a smart time to lock in gains. Valuation Discussion Circle's stock has gone parabolic since its IPO, and many would argue that it's priced for perfection. Of late, though, we've seen the stock wobble, pulling back near the $150 mark. Despite the steep correction, Circle still commands a market cap near $34 billion, putting it in line with, or just behind, some of the biggest names in fintech. For context, the stock is trading at over 12 times forward sales, more than 280% higher than the sector median. On an earnings basis, that picture gets even murkier. Peer Valuation CRCL Stock (Seeking Alpha) Circle's current valuation makes even well-established fintech peers look a lot less cheap. On a non-GAAP basis, for instance, Circle commands a forward P/E multiple of 92.8x, which is more than double when compared to big fintech plays like Visa ( V ) at 30.3x and Coinbase ( COIN ) at 41.6x. PayPal ( PYPL ) is perhaps the most mature name of the group, and it's trading at a P/E multiple of just 13.3x FY1, highlighting just how stretched Circle's valuation is at this point. Moreover, even with generous EPS estimates over the next few years, Circle's forward P/E is still projected to hover near 50 . Taking this further, on an EV/EBITDA basis, Circle's forward multiple is 65.8x, blazing past Visa (23.9x) and Coinbase (27.1x). Perhaps the biggest name out of the lot in PayPal sits at a mere 9.6x. Naturally, the bulls are counting on Circle to capture the lion's share of the future of finance, leading to outsized growth for years. However, for that to happen, a lot has to go right, and any hiccup in growth, margins, or regulatory climate will weigh down its stock price and then some. On the flipside, its peers like Coinbase also trade at rich valuations, but also boast broader business and actual net profits in some quarters. On top of that, many liken Circle's potential to a Visa, where it's taking big cuts of a huge volume of digital dollar transactions globally. However, even when pitted against it, Circle's stock price looks dizzying. Nevertheless, we must understand that Circle is a momentum stock that could swing 20% to 30% on sentiment alone. At this point, especially following a sizeable recent dip, momentum indicators are starting to back a bounce. The relative strength index has stabilized in the low-40s, creating a small bullish divergence. Also, volume-wise, distribution pressures appear to be easing out, which may result in a move higher towards the $165 to $170 mark (near Circle's consensus Wall-Street target) in the near-term. Hence, at least in the short term, the stock's high-flyer status appears mostly intact, but it's a tall order nonetheless. Risks to the Thesis Circle stock is no stranger to sharp swings, and those with a stomach for such volatility will know that momentum stocks can shoot both ways. The crypto stock is still early in the piece of what could be an entirely new business category, with a massive long-term addressable market. Also, Circle stock trades with emotion, but it also delivers real sales and is building infrastructure that could potentially underpin the next wave of global finance. As USDC adoption continues to grow, every incremental dollar in circulation becomes a high-margin driver. Nevertheless, given the high expectations, Circle doesn't leave its investors with any margin for error. Even a slight revenue miss or regulatory hiccup could result in the stock going into free-fall. Hence, Circle stock's price action shows how sentiment can easily detach from fundamentals. Sharp drops trigger margin calls, stop-loss selling, and panic exits. For those with a long-term horizon, though, will want to size up their positions wisely and prepare mentally for likely haymakers along the way. Final Word on Circle Stock Circle is perhaps the best stablecoin play, but the stock is clearly overheated. Q2 showed cracks in its scale effortlessly story, and over the long-term that's a tall order at premium multiples. However, given the stock's volatility, a near term, setup showing a path towards the $165-170 mark. For those going long though, will want to see a lot more from Circle, in its ability to reduce distribution costs, build a healthier non-interest revenue mix, along with USDC growth.
Bitcoin is currently holding above $118K after breaking its second channel, with futures open interest nearing $100B and RSI targeting levels between $119K and $122.6K. Bitcoin has broken out of
XRP price is gaining bearish pace below the $3.150 resistance zone. The price is struggling near $3.00 and remains at risk of more losses. XRP price is declining below the $3.20 and $3.150 levels. The price is now trading below $3.120 and the 100-hourly Simple Moving Average. There is a bearish trend line forming with resistance at $3.060 on the hourly chart of the XRP/USD pair (data source from Kraken). The pair could regain bullish momentum if it clears the $3.10 zone. XRP Price Dips Further XRP price attempted more gains above the $3.250 zone, like Bitcoin and Ethereum . The price failed to extend gains and started a downside correction below the $3.150 level. The pair dipped below the $3.120 and $3.10 support levels. Finally, it tested the $3.00 support zone. A low was formed at $2.971 and the price is now showing bearish signs below the 23.6% Fib retracement level of the downward move from the $3.350 swing high to the $2.97 low. The price is now trading below $3.050 and the 100-hourly Simple Moving Average. On the upside, the price might face resistance near the $3.020 level. The first major resistance is near the $3.050 level. There is also a bearish trend line forming with resistance at $3.060 on the hourly chart of the XRP/USD pair. A clear move above the $3.060 resistance might send the price toward the $3.120 resistance. Any more gains might send the price toward the $3.150 resistance or the 50% Fib retracement level of the downward move from the $3.350 swing high to the $2.97 low. The next major hurdle for the bulls might be near $3.20. More Losses? If XRP fails to clear the $3.050 resistance zone, it could start a fresh decline. Initial support on the downside is near the $2.9650 level. The next major support is near the $2.920 level. If there is a downside break and a close below the $2.920 level, the price might continue to decline toward the $2.850 support. The next major support sits near the $2.80 zone, below which there could be a larger decline. Technical Indicators Hourly MACD – The MACD for XRP/USD is now gaining pace in the bearish zone. Hourly RSI (Relative Strength Index) – The RSI for XRP/USD is now below the 50 level. Major Support Levels – $2.920 and $2.850. Major Resistance Levels – $3.050 and $3.150.