After Circle went public, its stock price surged from an IPO price of $31 to nearly $300 before experiencing a significant pullback. Investor interest was driven primarily by two factors: the rapid growth of the stablecoin industry and the increasing clarity around U.S. stablecoin regulation.
My conclusion at the time was straightforward:
Circle is a high-quality company operating in a promising sector, but at a valuation of roughly $40 billion, the market had already priced in a substantial portion of its future growth.
The stock was trading more on expectations for the next three to five years than on its current earnings power.
What Does Circle Actually Do?
Circle is the issuer of USDC, one of the world’s largest stablecoins.
When a user deposits one U.S. dollar, Circle issues one USDC token and maintains a 1:1 redemption promise.
The deposited dollars are not left idle. Circle invests its reserves primarily in:
U.S. Treasury securities
Reverse repurchase agreements (reverse repos)
The interest generated from these assets becomes Circle’s primary source of revenue.
As a result, Circle’s business economics are driven mainly by two variables:
The total amount of USDC in circulation.
The level of short-term interest rates.
The larger the USDC supply, the larger the reserve base Circle can invest. Higher interest rates translate directly into higher revenue.
Why Was the Market Willing to Pay Such a High Valuation?
Investors were not focused on Circle’s current earnings. They were focused on its potential role in the future financial system.
Stablecoins offer several advantages over traditional payment infrastructure:
24/7 settlement
Faster cross-border transfers
Programmable on-chain transactions
If stablecoins become widely adopted across payments, remittances, and institutional finance, Circle could benefit significantly as one of the leading compliant issuers.
At the time, the bullish case relied on several assumptions:
The global stablecoin market grows from roughly $250 billion to $2 trillion.
USDC maintains a market share of approximately 20%–25%.
Regulatory frameworks favor compliant stablecoins.
Circle continues to benefit from strategic partnerships with companies such as Coinbase and BlackRock.
If all of these assumptions hold, Circle’s business could become substantially larger than it is today.
What Would It Take to Support a $40 Billion Valuation?
A simple reverse-engineering exercise can help answer that question.
Assume:
Market capitalization: $40 billion
Future P/E ratio: 25x
Net profit margin: 10%
Interest spread: 4%
Under these assumptions, Circle would need approximately $1.6 billion in annual net income.
Using a simplified framework:
Required USDC Supply = Market Cap ÷ (Interest Spread × Net Margin × P/E)
Substituting the numbers:
$40 billion ÷ (4% × 10% × 25)
The result is approximately $400 billion of USDC in circulation.
In other words, a $40 billion valuation implied that USDC would eventually grow from roughly $60 billion in circulation to around $400 billion.
Is That Growth Target Realistic?
It’s certainly possible.
Government officials in both the U.S. and Canada have discussed scenarios in which the stablecoin market could reach $2 trillion by 2028.
If the total market expands to that size and USDC maintains a 20% market share, USDC circulation could indeed approach $400 billion.
Viewed from that perspective, the valuation was not entirely irrational.
However, it did assume a relatively optimistic growth trajectory.
Where Are the Risks?
Interest Rates
Circle’s earnings are highly sensitive to short-term interest rates.
If the Federal Reserve enters a prolonged rate-cutting cycle, yields on reserve assets would decline, reducing Circle’s revenue.
Profit Margins
Circle does not keep all of its interest income.
The company incurs compliance costs, operational expenses, audit costs, and distribution expenses. A significant portion of revenue is also shared with partners such as Coinbase.
As a result, profit margins could remain under pressure even if USDC continues to grow.
Competition
USDT remains the dominant stablecoin globally.
Meanwhile, new entrants continue to emerge:
PayPal
Stripe
Large banks
Financial institutions developing tokenized deposits
Circle’s compliance advantage is valuable, but it may not be permanent or exclusive.
Market Share
The valuation depends not only on overall stablecoin growth but also on USDC maintaining its position within that market.
A larger stablecoin market alone is not enough if USDC loses share to competitors.
The Coinbase Relationship
One of the most important aspects of Circle’s business model is its relationship with Coinbase.
USDC’s growth was heavily supported by Coinbase’s distribution network, user base, and liquidity infrastructure.
Stablecoins require more than issuance; they require adoption, trading volume, and liquidity.
Coinbase helped solve that problem.
The tradeoff is that Circle shares a meaningful portion of its economics with Coinbase. This means that growth in USDC supply does not translate one-for-one into growth in Circle’s profits.
As long as the partnership remains intact, both companies benefit.
If the relationship changes in the future, Circle’s profitability could be affected.
My Final View
At the time, I viewed Circle as one of the most important publicly traded companies in the stablecoin ecosystem.
The industry has real utility and meaningful long-term growth potential.
However, at a valuation of approximately $40 billion, the market was already assuming several favorable outcomes:
USDC expands to roughly $400–500 billion in circulation.
Interest rates remain relatively high.
Profit margins remain healthy.
Coinbase continues to support USDC.
Regulatory developments favor compliant stablecoins.
None of these assumptions are impossible.
But they all need to work together.
For that reason, I did not view Circle as an obvious bargain at those levels.
My conclusion was that Circle represented a high-expectation asset rather than a deeply undervalued opportunity.
Going forward, I believed investors should focus on three key metrics:
Growth in USDC circulation.
Improvement in Circle’s profitability.
The stability of its relationship with Coinbase.
If all three continue moving in the right direction, the valuation may ultimately prove justified.
If not, future price declines would likely reflect expectations converging with reality rather than a deterioration of the underlying business.