This year’s harshest research report on Circle on Wall Street—when it was published, it happened to coincide with the stock’s intra-year low. Morgan Stanley cut its rating to “Sell” (reduce holdings), slashed the price target by more than half; on the same day TD Cowen flipped the script and initiated a “Buy.” Three weeks later, the price of $CRCLB had left both firms’ targets in the dust. Needless to say, the bearish note was wrong; but even the bullish one didn’t keep up.
On August 3, Morgan Stanley’s James Faucette downgraded CRCL from Hold/Watch to Sell (reduce holdings), setting a target price of $38. On the same day, TD Cowen initiated coverage with a Buy rating and a target price of $82. That day CRCL closed at $60.35—the lowest day in three months. On Monday, on the NYSE, it closed at $87.72. On Binance’s spot market, $CRCLB is now quoted at $85.9, and in pre-market trading it has pulled back slightly, tracking the crypto-concept stocks.
This rally has little to do with reserve income. In Q2, Circle’s reserve income year over year increased by only a low double-digit percentage—or rather, just a single-digit gain. Its reserve yield was also lower than last year, and total revenue failed to beat market expectations. What the market bought were two other things. At the end of July, Circle fully acquired IBM’s blockchain patent portfolio, instantly becoming the U.S. company with the most blockchain patents in hand. Then on August 19 it also announced that Arc mainnet is scheduled for September 16. The day that news broke, CRCL’s trading volume more than doubled versus the prior day.
The money-making machine at Circle hasn’t been fixed yet. Today, USDC circulating supply stands at $73.8 billion—almost unchanged since the end of June. This year’s high was $79.6 billion on March 18. Coincidentally, CRCL’s own closing high this year also occurred on March 18, at $132.84. Both curves peaked on the same day. Before that, the market’s valuation of Circle was basically calculated based on circulating supply. Faucette’s downgrade landed right on that point. He cut his assumptions for USDC in 2027 and 2028 by 30% to 40%, and added a more unkind line: stablecoin usage is always concentrated in crypto trading and has not expanded into payments. Tokenized money market funds and tokenized deposits—both of these “things” steal both balances and fee rates.
Stopping circulating supply is only the surface. Circle’s trouble is buried in the cost line. In the same quarter, reserve income was $668 million, while distribution, trading, and other costs were $412 million. More than 60% of the money changes hands and gets paid out. The main recipient is Coinbase: all reserve income attributable to the portion of USDC held on the Coinbase platform goes entirely to Coinbase, while the two other counterparties split it fifty-fifty for USDC held elsewhere. At the end of June, about 30% of USDC was sitting on Coinbase’s books. This profit-sharing agreement was renewed in August under the original terms through 2029—effectively “welding shut” the cost structure for the next three years in advance.
Coinbase signed that agreement and is also one of the initiators of Open USD. This alliance includes more than 100 institutions—Visa, Mastercard, BlackRock, Stripe, Google are all in it. The rule of the game is: reserve earnings minus management fees are returned to the participating merchants. The slice of income that Circle and Tether have survived on by earning the spread has been carved out in this design. BlackRock is also a collaboration partner for Arc. These institutions sign on both sides; what they’re betting on is the #稳定币 track itself. As for who the issuer ends up being, they don’t care as much.
This year, the interest-rate line has actually been a tailwind. Warsh is scheduled to speak at Jackson Hole this Friday—his first public appearance since becoming chair of the Fed. Inflation hasn’t yet returned to target. In the July minutes, three votes favored tightening. Market pricing for a September rate cut has been drifting downward for weeks. Higher rates are good for Circle’s reserve income. If the shorts bet that rate cuts would thin the spread, then this year’s logic has not played out. The pressure comes from stalled circulating supply and that profit-sharing table, not from the Fed.
The market has shifted the way it values Circle—from an interest-rate ledger to a network-usage ledger—and in terms of direction, I agree. Faucette’s $38 target treats Circle as pure interest-rate beta and cut it too aggressively. Things like licenses, patents, and a clearing chain that is about to go live—none of that belongs in a spread model. But at $85, the market is already buying September 16 as the realization date. Arc going live is only the start of work; even if the testnet is bustling, it still hasn’t reached the point of charging.
The doubled full-year other-income guidance in Q2 included roughly $180 million from staged confirmations of Arc token pre-sales—one-time revenue. If you strip that out, look at whether other income in Q3 and Q4 can stand on its own. If it can, then this round of gains has a basis for accounting. If you strip it out and it’s still only in the low tens of millions range, then what you’re buying with $85 is simply the story.
On September 16, the Arc mainnet launch coincided with this round of the FOMC. If you want to follow the path of #Circle , you can compare the USDC circulating supply before and after with the actual settlement volume on Arc itself—it’s more useful than staring at the order book.
On August 3, Morgan Stanley’s James Faucette downgraded CRCL from Hold/Watch to Sell (reduce holdings), setting a target price of $38. On the same day, TD Cowen initiated coverage with a Buy rating and a target price of $82. That day CRCL closed at $60.35—the lowest day in three months. On Monday, on the NYSE, it closed at $87.72. On Binance’s spot market, $CRCLB is now quoted at $85.9, and in pre-market trading it has pulled back slightly, tracking the crypto-concept stocks.
This rally has little to do with reserve income. In Q2, Circle’s reserve income year over year increased by only a low double-digit percentage—or rather, just a single-digit gain. Its reserve yield was also lower than last year, and total revenue failed to beat market expectations. What the market bought were two other things. At the end of July, Circle fully acquired IBM’s blockchain patent portfolio, instantly becoming the U.S. company with the most blockchain patents in hand. Then on August 19 it also announced that Arc mainnet is scheduled for September 16. The day that news broke, CRCL’s trading volume more than doubled versus the prior day.
The money-making machine at Circle hasn’t been fixed yet. Today, USDC circulating supply stands at $73.8 billion—almost unchanged since the end of June. This year’s high was $79.6 billion on March 18. Coincidentally, CRCL’s own closing high this year also occurred on March 18, at $132.84. Both curves peaked on the same day. Before that, the market’s valuation of Circle was basically calculated based on circulating supply. Faucette’s downgrade landed right on that point. He cut his assumptions for USDC in 2027 and 2028 by 30% to 40%, and added a more unkind line: stablecoin usage is always concentrated in crypto trading and has not expanded into payments. Tokenized money market funds and tokenized deposits—both of these “things” steal both balances and fee rates.
Stopping circulating supply is only the surface. Circle’s trouble is buried in the cost line. In the same quarter, reserve income was $668 million, while distribution, trading, and other costs were $412 million. More than 60% of the money changes hands and gets paid out. The main recipient is Coinbase: all reserve income attributable to the portion of USDC held on the Coinbase platform goes entirely to Coinbase, while the two other counterparties split it fifty-fifty for USDC held elsewhere. At the end of June, about 30% of USDC was sitting on Coinbase’s books. This profit-sharing agreement was renewed in August under the original terms through 2029—effectively “welding shut” the cost structure for the next three years in advance.
Coinbase signed that agreement and is also one of the initiators of Open USD. This alliance includes more than 100 institutions—Visa, Mastercard, BlackRock, Stripe, Google are all in it. The rule of the game is: reserve earnings minus management fees are returned to the participating merchants. The slice of income that Circle and Tether have survived on by earning the spread has been carved out in this design. BlackRock is also a collaboration partner for Arc. These institutions sign on both sides; what they’re betting on is the #稳定币 track itself. As for who the issuer ends up being, they don’t care as much.
This year, the interest-rate line has actually been a tailwind. Warsh is scheduled to speak at Jackson Hole this Friday—his first public appearance since becoming chair of the Fed. Inflation hasn’t yet returned to target. In the July minutes, three votes favored tightening. Market pricing for a September rate cut has been drifting downward for weeks. Higher rates are good for Circle’s reserve income. If the shorts bet that rate cuts would thin the spread, then this year’s logic has not played out. The pressure comes from stalled circulating supply and that profit-sharing table, not from the Fed.
The market has shifted the way it values Circle—from an interest-rate ledger to a network-usage ledger—and in terms of direction, I agree. Faucette’s $38 target treats Circle as pure interest-rate beta and cut it too aggressively. Things like licenses, patents, and a clearing chain that is about to go live—none of that belongs in a spread model. But at $85, the market is already buying September 16 as the realization date. Arc going live is only the start of work; even if the testnet is bustling, it still hasn’t reached the point of charging.
The doubled full-year other-income guidance in Q2 included roughly $180 million from staged confirmations of Arc token pre-sales—one-time revenue. If you strip that out, look at whether other income in Q3 and Q4 can stand on its own. If it can, then this round of gains has a basis for accounting. If you strip it out and it’s still only in the low tens of millions range, then what you’re buying with $85 is simply the story.
On September 16, the Arc mainnet launch coincided with this round of the FOMC. If you want to follow the path of #Circle , you can compare the USDC circulating supply before and after with the actual settlement volume on Arc itself—it’s more useful than staring at the order book.