Summary Circle posted strong Q3 results, with revenue diversification efforts continuing to progress. CRCL's business is still heavily reliant on USDC issuance and short-term interest rates, though, making it vulnerable to both falling interest rates and a potential crypto market downturn. While I believe there could still be further downside, I am now more neutral on Circle's stock after the recent decline. Circle's ( CRCL ) third-quarter results were strong, with efforts to diversify revenue beginning to pay off. This will only play out slowly, though, and in the meantime there is little to prevent a complete implosion of Circle's business in the event of a recession. I previously highlighted the enormous risks Circle was facing, and its share price is down over 40% since then. Short-term interest rates continue to fall, although this has been fairly modest so far. Bitcoin's price is also down materially in recent weeks, which could temper demand for stablecoins. Despite this, I am now more neutral on Circle's stock after the recent decline, as the longer term narrative remains fairly compelling. Having said that, there will little to support Circle's share price if macro conditions continue to deteriorate. Market Conditions The most important recent development for stablecoins is the introduction of a far more favorable regulatory environment. While the full impact likely won't be felt for some time, Circle is best positioned to capitalize on this situation due to its focus on compliance. Stablecoins in circulation increased 59% YoY in Q3, supported by surging markets. Circle’s market share also increased to 29% in the quarter. Stablecoin transaction volumes were reportedly up around 130% YoY, with USDC’s share growing to 40%. While this is positive, the recent market pullback is likely to temper demand for stablecoins in the short term. If this situation evolves into a bear market or recession, USDC's market capitalization could drop significantly, despite secular tailwinds. Figure 1: Bitcoin Price and USDC Market Capitalization (source: Created by author using data from) Circle Business Updates Circle's business continues to be dominated by the issuance of USDC, a US-dollar-denominated stablecoin. Circle also now offers the EURC stablecoin, but its market cap is still negligible. This is important as it means that Circle's revenue is predominantly dependent on short-term interest rates. Circle is building financial infrastructure that extends well beyond just USDC, though. This includes the Arc layer-1 blockchain, which is tailored for stablecoins. Circle recently launched the Arc public testnet with more than 100 participants. While this is an interesting strategic move, it is not guaranteed to be successful. Arc faces fierce competition, and it is a late entrant into the market. This must be weighed against the fact that Circle has a distribution advantage and could use incentives to drive adoption. For example, Circle is already considering introducing a native token on the Arc Network. Circle also offers CCTP (Cross-Chain Transfer Protocol), an infrastructure solution that enables the movement of USDC across blockchains, improving liquidity and the user experience. CCTP volume reached 31.3 billion USD in Q3, up 640% YoY. Circle has suggested that this represented around 47% of the bridged volumes that it tracks. Circle also has the Circle Payments Network, a stablecoin payments solution targeted at financial institutions. It abstracts the complexity of the underlying blockchain system and enables fast, low-cost, and compliant global payments. CPN was only launched in May 2025 but is already seeing significant transaction volume growth. Support for 5 new chains was added in the quarter, and Circle continues to expand the CPN product portfolio. This includes CPN Console, a self-service solution for CPN members, and CPN Payouts, which enables automated stablecoin payouts on CPN. There are now 29 network members and a pipeline of 500 financial institutions waiting to join. CPN transaction volume is currently at around a 3.4 billion USD annual run rate. The other important part of Circle's business at the moment is USYC, a tokenized money market fund. Circle acquired this product to support the rising use of yield-bearing digital assets as collateral in margin trading. USYC is now the second largest TMMF globally, with roughly 1 billion USD AUM. Financial Analysis USDC in circulation reached almost 74 billion USD in the third quarter, an increase of 108% YoY. Onchain transactions using USDC also grew 580% YoY to 9.6 trillion USD. Revenue and reserve income was only up 66% to 740 million USD though, with lower interest rates offsetting a substantial portion of the volume increase (return on reserves of ~4.15%). Transaction revenue totaled 4.7 million USD in the quarter. Other revenue was 29 million USD in Q3, up from less than 1 million USD in the prior year's comparable quarter. Subscription and services revenue totaled 23.6 million USD, which primarily relates to blockchain network partnerships. Circle hasn't given specific near-term revenue guidance. USDC in circulation is expected to grow at a 40% CAGR over a multi-year period, though, which probably puts revenue growth at less than a 30% CAGR. Circle also now expects 90-100 million USD Other Revenue in 2025, which would mean that Other Revenue is fairly flat sequentially. Given the underlying trends in the business, this guidance appears overly conservative. Figure 2: Circle Revenue (source: Created by author using data from Circle) Total distribution and transaction and other costs increased 74% YoY in Q3 to 448 million USD. The increase was driven by distribution incentives and growth of USDC balances held on Coinbase's platform. As a result, Circle's RLDC margin declined to 39.5%. Circle's adjusted operating expenses only increased 35% YoY to 131 million USD though, with adjusted EBITDA reaching 166 million USD at a 22% margin. While Circle has a highly profitable business, this would soon change if interest rates were to drop significantly. Figure 3: Circle Margins (source: Created by author using data from Circle) Conclusion I remain skeptical of Circle's business due to its current dependence on interest rates and cryptocurrency speculation. The company is moving in the right direction, though, with its infrastructure solutions and tokenized money market fund continuing to grow rapidly. It will likely be years before these alternative revenue sources are large enough to justify Circle's current market capitalization. In the meantime, weakening economic conditions continue to present a serious threat to Circle's share price. Despite this, I am now more neutral on Circle's stock, as it could soon find support after the recent decline.
