Circle's stock is facing medium-term risks, including rising distribution costs, slowing USDC growth, and the possibility of the Fed lowering interest rates.
Market analysis indicates a growing gap between expectations and reality of USDC along with competitive pressure and rising costs that may impact Circle's profitability and stock price in the coming years.
MAIN CONTENT
Circle's stock may drop to $40 by 2027 due to the risk of rising costs and slow USDC growth.
The current USDC growth rate is lower than long-term expectations, only achieving 6% in the current quarter compared to the target of 40% per year.
Competitive pressure from rivals and the Fed's interest rate cut trend could negatively affect Circle.
What medium-term risks is Circle's stock facing?
Analysts from Mizuho Securities forecast that Circle's stock is facing many challenges, including slowing USDC growth, rising distribution costs, and the possibility of the Federal Reserve (Fed) lowering interest rates.
The current stock price is significantly higher than the bearish forecast of around $40 by 2027, while the baseline forecast is $84, compared to the recent close of $153.16. This signals that investors need to pay attention to long-term factors affecting stock value.
Why is USDC growth not meeting expectations?
The issuance rate of USDC has only increased by 6% in the current quarter, much lower than the long-term growth target of 40% per year set by Circle.
This gap indicates that USDC has not truly exploded as expected while the cryptocurrency market is growing. This also reduces profit expectations and directly impacts Circle's stock price as revenue from USDC issuance is a major source of income.
How does the increase in distribution costs affect Circle's profitability?
The distribution cost of USDC has increased from 39% in 2022 to 61% in 2024 and reached 64% in the second quarter, significantly narrowing profit margins.
This increase in costs, combined with pressure from the GENIUS law pushing other financial institutions to issue new stablecoins, is creating increasingly fierce competition. The biggest competitor, Tether, is also preparing to re-enter the U.S. market, adding further pressure on Circle.
High issuance costs and competition from other stablecoins are reducing Circle's profit margins, making the growth outlook for the stock uncertain.
Mizuho Securities analysis, 14/8/2024
What is the impact of the Fed's interest rate cut trend on Circle?
The consumer price index (CPI) in the U.S. in July only increased by 2.7% compared to the previous year, lower than expected, creating downward pressure on interest rates from the Fed.
Although this benefits the overall economy, it is detrimental to Circle because low interest rates may reduce revenue from reserves and other financial activities of the company.
What do experts predict about Circle's stock price?
While Mizuho Securities provides a baseline price forecast of $84 and a bearish scenario of $40, Bernstein still maintains a target of $230 for Circle's stock, reflecting a more positive outlook.
This is a sign that the market has not yet reached a clear consensus on the company's long-term trends due to fluctuations in business and the economic environment.
Frequently Asked Questions
How low could Circle's stock go by 2027?
According to Mizuho Securities, stock prices could drop to $40 if medium-term risks such as rising costs and slow USDC growth occur.
What is the current USDC growth rate?
USDC grew by 6% in this quarter, much lower than Circle's long-term growth target of 40% per year.
How have USDC issuance costs changed over the past few years?
Distribution costs increased from 39% in 2022 to 64% in the second quarter of 2024, reducing Circle's available profits.
Why does the Fed's interest rate cut trend negatively impact Circle?
Low interest rates reduce income from the company's reserves and other financial activities, impacting profitability.
Do experts have differing opinions on Circle's stock price?
There is a difference as some provide bearish forecasts, while some maintain higher price targets, reflecting the market's lack of consensus.
Source: https://tintucbitcoin.com/usdc-doi-mat-rui-ro-trung-han/
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