Circle stock price surged to a new record high after the US Senate passed the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS) and the ongoing stablecoin demand. CRCL shares closed at $200, up by over 300% from its listing price.
Cashing in on stablecoin growth
Circle stock price has surged after going public as investors focused on the GENIUS Act, which passed in the Senate this week. There are rising odds that the bill will pass in the House of Representatives since some Senate Democrats supported it.
The GENIUS Act is a bullish catalyst for Circle stock for two main reasons. First, it brings in the regulatory clarity that the stablecoin market needs without adding any undue costs. For example, the bill mandates issuers to hold liquid government bonds and do regular reporting, which Circle does already.
Second, the GENIUS Act may make USDC gain market share if Tether refuses to comply as it did with MiCA. Such a move will force companies like Coinbase to convert user holdings from USDT to USDC as some European exchanges have done.
Circle Payments Network is a key catalyst
The other bullish catalyst for the Circle stock price is the Circle Payments Network (CPN), a business that seeks to disrupt the financial services industry.
CPN partners with banks and payment service companies to offer them a cheaper and faster approach to send money internationally.
Presently, these companies use SWIFT technology, a process that is expensive and slow. That’s because it uses correspondent banks and other processes. As a result, it is normal for a transaction to take a few hours or days to complete.
The Circle Payment Network avoids this lengthy process by using USDC. In it, a company executes a payment using the stablecoin, which is then completed within a few seconds. USDC transactions cost cents, making them ideal for all parties.
The CPN business model also has a chance to disrupt traditional companies like Visa and Mastercard that make billions of dollars a year in payment transaction costs.
Indeed, it has been reported that companies like Walmart and Amazon are considering leveraging stablecoins to cut these costs. One way for them to do that would be to partner with Circle, which already runs a popular stablecoin.
Risks for buying Circle stock
There are risks for buying Circle stock at this level. First, there are signs that USDC holdings are not growing. CoinGecko data shows that the stablecoin has a market cap of $61.45 billion, lower than the April high of $62 billion.
Circle needs its USD supply to continue growing for it to supercharge its growth. Higher stablecoin growth means that it will generate higher investment income.
The other risk is that the company is now highly valued since its market cap stands at over $33 billion, 54% of its total stablecoin assets.
Further, the Federal Reserve has signaled that it will execute two interest rate cuts this year and more in 2024 and 2025. Lower rates will impact its revenue and profitability growth.
Circle stock price will also face risks of a pullback when investors start to take profits. Cathie Wood’s Ark Invest has already dumped shares worth millions of dollars, and more investors will follow.
The other top risk is that the company’s lockup expiry will happen in the next few months. Historically, recently IPOed companies crash or experience volatility ahead of expiry, letting insiders dump their shares.
Finally, the ongoing momentum will likely ease now that the Circle stock price has become highly overbought.
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