JPMorgan gives a 'Reduce' rating with a target price of $80, significantly lower than the current price.
JPMorgan released its first research report on Circle (NYSE: CRCL) on Monday, assigning the stablecoin issuer a 'Reduce' rating and setting a target price of $80, a significant downgrade of 57% from the current stock price of about $186.50. Although JPMorgan analysts highly value Circle's management team and express confidence in the growth prospects of stablecoins and $USDC, they believe the company's current market capitalization is overly inflated.
Since Circle went public on June 5 at an IPO price of $31, its stock has performed remarkably, soaring to an all-time high of $299. According to CompaniesMarketCap data, Circle currently has a market capitalization of $43.75 billion, a significant increase from the $8 billion market capitalization at the time of its IPO. The team led by JPMorgan analyst Kenneth Worthington states that the target price of $80 reflects an expected market capitalization of about $21 billion by the end of 2026, based on a 45 times earnings multiple for the estimated earnings per share in 2027, plus a $10 premium to reflect investor enthusiasm for the stablecoin outlook.
Source: CompaniesMarketCap Circle currently has a market capitalization of $43.75 billion, a significant increase from the $8 billion market capitalization at the time of its IPO.
In contrast, other Wall Street analysts hold a more optimistic view on Circle.
Bernstein assigns an 'Outperform' rating and a target price of $230, calling Circle a 'must-have stock for investors.'
Canaccord Genuity gives a 'Buy' rating and a target price of $247, believing Circle possesses key traits for long-term success in the potentially huge new digital currency market.
High sensitivity to interest rates raises concerns, and competitive threats are intensifying.
JPMorgan analysts point out that Circle's business model is highly sensitive to interest rate changes, with over 95% of revenue derived from assets backing dollar-pegged tokens, including cash and U.S. Treasury securities. While lower interest rates will affect Circle's profitability, if rates remain high for an extended period, the company may outperform expectations.
Competitive threats are regarded as one of the main risks facing Circle. JPMorgan analysts stated: 'We view competition as a potential threat to Circle.' This includes not only direct stablecoin competitors but also other crypto investment products, such as tokenized deposit accounts and digital money market funds. Analysts are concerned that some competitors may successfully capture enough market share to achieve critical mass, leveraging the network established by Circle in businesses with lower switching costs.
It is particularly noteworthy that unlike tokenized money market funds (tMMFs), Circle's $USDC does not offer yields to investors. If tokenized money market funds begin to capture stablecoin market share, it may limit $USDC's future growth. However, analysts also believe that Circle's stablecoin and $USDC issuance network have interoperability features that competitors may find difficult to replicate.
Regulatory legislation is a double-edged sword, and capital requirements may become a growth constraint.
The upcoming stablecoin legislation presents both opportunities and challenges for Circle. JPMorgan analysts believe that stablecoin regulations could help $USDC capture market share from the industry-leading stablecoin Tether's $USDT, as the new rules will force Tether to adjust its tokens to meet compliance requirements. $USDC has a more 'compliant and trustworthy brand,' which will attract more conservative Wall Street firms.
However, if the final signed legislation includes higher capital requirements, requiring Circle to hold more capital for $USDC redemptions, this could also 'limit the growth of $USDC.' U.S. stablecoin regulations may soon require issuers like Circle to hold equity capital based on the amount of stablecoins in circulation, similar to the European MiCA regulations.
JPMorgan estimates that Circle has sufficient equity to support its $USDC stablecoin holdings in the U.S., but analysts believe that higher capital requirements may limit $USDC's growth. Additionally, the development of central bank digital currencies (CBDCs) poses risks.
Despite U.S. President Trump's executive order banning the digital dollar, if regions like the EU ultimately adopt CBDCs, it could negatively impact $USDC's global expansion capabilities.
Long-term prospects remain positive, and the stablecoin market has significant potential.
Despite numerous risk factors, JPMorgan analysts still believe Circle could perform exceptionally well in certain scenarios, including if the adoption rate of stablecoins in the U.S. exceeds expectations or if the use of stablecoins in cross-border and consumer payments surges.
Analysts noted: 'Stablecoin regulations are advancing in the U.S. The passage of stablecoin regulations could become a greater catalyst for stablecoin adoption domestically and abroad, and we believe $USDC will be the winner.'
Bernstein holds an optimistic view on the overall stablecoin market, expecting the total market capitalization to reach about $4 trillion from the current $225 billion in the next decade. The investment bank believes Circle is building a market-leading digital dollar stablecoin network, with strong regulatory advantages, leading liquidity, and important distribution partnerships.
JPMorgan analysts emphasize that Circle is well-positioned in the emerging stablecoin market, benefiting from first-mover advantage and numerous use cases. However, the current level of market capitalization reflects extreme optimism from investors, which may have exceeded reasonable ranges supported by fundamentals.
'Is the Circle craze fading? JPMorgan warns of overvaluation, two major factors may limit growth.' This article was first published in 'Crypto City.'
