Circle’s Rollercoaster: Market Dynamics Overshadow Financials in 50% Surge
In a dramatic turn of events, shares of Circle (CRCL), the issuer behind the prominent USDC stablecoin, have witnessed an astonishing surge of nearly 50% in the wake of its fourth-quarter earnings report. This violent market movement, however, appears to be less a testament to stellar financial performance and more a consequence of a massive short squeeze, catching bearish hedge funds off guard and costing them hundreds of millions.
The Short Squeeze: A $500 Million Reckoning for Bears
The post-earnings rally, which saw Circle’s stock snap a brutal 80% drawdown from its previous highs, was primarily fueled by market positioning rather than a fundamental re-rating, according to analysts. Markus Thielen, founder of 10x Research, highlighted that hedge funds had amassed significant bearish bets against the stock leading into the report. This overcrowded positioning created the perfect storm for a short squeeze, forcing these funds to cover their positions as the stock climbed, exacerbating the upward momentum.
Thielen estimated that these bearish bets resulted in approximately $500 million in losses for hedge funds in a single day as shares rocketed higher. “The magnitude of the move was not driven purely by the headline numbers. The real catalyst was positioning,” Thielen asserted, underscoring the dominance of market mechanics over traditional financial metrics in this particular rally.
Beneath the Surface: A Mixed Financial Picture
While the stock’s performance was largely positioning-driven, Circle’s earnings report itself presented a nuanced picture of growth alongside profitability challenges.
USDC Growth Amidst Profitability Headwinds
On the positive side, Circle’s flagship USDC stablecoin demonstrated robust growth, with its circulation expanding by 72% year-over-year to $75.3 billion. This growth outpaced that of its primary rival, Tether’s USDT, as noted by Harvey Li, founder of Tokenization Insight.
Revenue derived from reserve income, primarily from U.S. government debt backing USDC, also saw a healthy 58% increase to $2.64 billion. However, this positive was tempered by an even faster rise in distribution costs, which climbed 66% to $1.66 billion. This surge in expenses reflects the significant investment required to incentivize partners and platforms for broader adoption of the stablecoin.
Despite the surging circulation, Circle swung from a $156 million net profit in 2024 to a $70 million loss, a point emphasized by Li. “Stablecoin may be scaling; stablecoin issuance is a tough business,” he concluded, highlighting the inherent challenges in the sector.
Analyst Optimism and the Rise of “Agentic Commerce”
Despite the profitability concerns, Circle did manage to top analyst forecasts, leading Japanese investment bank Mizuho to raise its price target on the stock from $77 to $90. Mizuho cited a boost from prediction markets and growing optimism surrounding “agentic commerce” – a future where autonomous AI agents transact using Circle’s USDC stablecoin.
Analysts Dan Dolev and Alexander Jenkins noted that Circle’s results surpassed expectations on both revenue and profit, alleviating some investor pessimism. Management specifically highlighted prediction and betting platforms, such as Polymarket, as significant drivers of recent USDC growth due to their high-frequency transaction flows.
Crucially, executives also underscored USDC’s emerging role in agentic commerce, envisioning the stablecoin as a potential default currency for AI agents operating across digital marketplaces. This forward-looking perspective, coupled with a growing ecosystem of products built on USDC, paints a picture of future potential, even as current profitability remains a hurdle.
Mizuho now projects an average USDC circulation of approximately 123 million by 2027, modeling reserve income of about $3.7 billion and EBITDA of $916 million for that year. Applying a premium 24x EBITDA multiple to peers, the bank arrived at its new $90 price target, albeit reiterating a neutral rating due to potential headwinds from lower interest rates on reserve income.
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