Circle stock downgraded to Sell by Wall Street analyst citing rising competition, valuation concerns
Compass Point downgraded Circle to Sell from Neutral and lowered the stock's price target to $130 from $216.
The development comes on the heels of the Genius Act signed into law by President Trump last week. The legislation, designed to regulate the issuance and oversight of digital tokens backed by assets such as the US dollar and short term Treasury bills, has been a major catalyst for Circle stock. Shares are up more than 500% since the company's blockbuster IPO on June 5.
"While we expected CRCL to rally into stablecoin legislation, crypto investors typically 'sell the news' after highly anticipated events," crypto and equity research analyst Ed Engel said in a note on Monday.
"As such, we expect CRCL to retrace some of its recent rally," he added.
Circle makes much of its money from interest income — specifically from short-term Treasury bills backing its stablecoin, USDC (USDC-USD).
In recent weeks Wall Street analysts have flagged risks heading into the back half of the year for the high flyer, including rising distribution costs given that a significant portion of its reserve income is shared with partners like Coinbase (COIN).
"In the coming months, we expect Circle to expand its distribution network while sharing a greater percent of interest income," Engel wrote.
"We also expect traditional banks and Fintechs to announce competing stablecoin products," he added.
Earlier this month Mizuho analyst Dan Dolev initiated coverage of the stock with an Underperform rating and a $85 price target. He noted that if the Federal Reserve starts cutting interest rates in September, yields on Treasurys would decline, impacting Circle's bottom line.
"We believe consensus does not fully account for looming interest rate cuts, and also overstates USDC's medium-term growth potential," wrote Dolev and his team.
Circle stock has rallied 500% since the company went public on June 5. (AP Photo/Richard Drew)
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Not everyone is bearish on the stock. Wall Street remains divided, with 9 Buy, 6 Hold, and 4 Sell ratings, according to Bloomberg data.
Last Friday, Seaport Research Partners raised its price target on Circle to $280 from $235.
"For CRCL, we see the Genius Act passing as a watershed moment that will eventually unlock a substantial amount of new opportunity for stablecoins," analyst Jeff Cantwell wrote.
"CRCL is a global leader in stablecoins and is the purest stablecoin play in the public markets right now, and we anticipate further gains in the shares as the company creates new opportunities for itself and its partners," he added.
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