Circle Internet Group (NYSE:CRCL) saw its stock price jump 8.25% on Monday, closing at $65.45, even as the broader market edged lower with the S&P 500 falling 0.19%. The gain came despite the company reporting a decline in the supply of its USDC stablecoin, which could weigh on revenue prospects.
According to data from Circle, the total USDC in circulation stood at $73.1 billion as of July 16, representing a 5.1% decrease from the $77.0 billion recorded at the end of the first quarter. This $3.9 billion reduction in the stablecoin's supply directly impacts the reserve income Circle generates from the underlying assets backing USDC.
Preliminary estimates suggest that with the current balance, quarterly reserve income would be roughly $640 million, based on the first-quarter reserve return rate of 3.5%. This compares to the $653 million in reserve income Circle actually reported for Q1, which accounted for 94% of its combined total revenue and reserve income. A sensitivity test assuming a lower 3.25% return would reduce that figure to approximately $594 million, a 9% decline.
The shift in stablecoin usage dynamics is also noteworthy. According to Visa (NYSE:V) data, USDC accounted for nearly 70% of adjusted stablecoin transaction volume in the first half of the year, while Tether's USDT represented about 25%. Adjusted total volume across the sector reached $1.79 trillion in June alone. While elevated transfer volumes may strengthen network effects, they do not necessarily translate into higher revenue-generating reserves.
Mizuho Securities analysts, led by Dan Dolev, recently downgraded Circle, lowering their rating to underperform and slashing the price target to $50 from $85. The analysts cited the potential impact of OpenUSD, a yield-sharing framework that could allow distributors to demand a larger share of reserve income, fundamentally altering Circle's business model. This pressure is already evident: Circle reported $407 million in distribution, transaction, and related expenses in Q1, leaving a revenue margin after distribution costs of just 41%.
Despite Monday's rebound, Circle's stock remains under pressure. Shares had fallen 8.6% from July 10 through last Friday, and after Monday's gain, they were trading just 1.0% below the July 10 close. The stock's intraday range on Monday was $60.87 to $66.98, with volume of 13.87 million shares.
The company's next major test will be whether USDC's dominance in transaction volume can translate into renewed growth in its supply. Without fresh increases in balances, transaction growth alone may not boost earnings in the short term. Key factors to watch include the next reserve update and movements in short-maturity Treasury yields, which directly influence reserve earnings.
Risks to the outlook include increased USDC issuance or rising yields, which would heighten earnings sensitivity. Conversely, declining interest rates, higher partner payouts, competition from OpenUSD, or fresh redemptions could diminish income prospects. Circle has no investor events planned for the coming week, leaving the market to focus on these fundamental drivers.
