Circle stock price continued its strong surge on Monday, boosting its market capitalization to over $27 billion.
CRCL jumped to $138.27, a significant increase from its offer price of $31. The rally was driven by investor appetite for exposure to the growing stablecoin industry, which Citi expects it to be worth over $1.6 trillion by 2030.
Circle’s performance makes it the best-performing IPO of the year. However, there are two key reasons why the stock may be due for a reversal.
Valuation concerns remain
Circle’s stock price may face downside pressure due to valuation concerns. Its current market capitalization of $27 billion represents roughly 45% of its total USD Coin (USDC) assets, which is relatively high.
In its most recent earnings disclosure, Circle posted $1.6 billion in annual revenue for 2024, up from $1.45 billion in 2023. Net income came in at $155 million, giving the stock a price-to-earnings ratio of 174.2, well above industry norms.
While Circle may deserve a premium valuation due to its leading position in the stablecoin market, a key risk is the potential for earnings growth to slow. This risk becomes more pronounced if the Federal Reserve begins cutting interest rates later this year and into 2026, as Polymarket traders expect.
Circle’s core business earns revenue by investing its reserve assets in government bonds—whose yields are likely to decline as rate cuts begin.
Post IPO momentum to lose steam amid profit-taking
Another reason Circle stock could retreat is the potential loss of post-IPO momentum, a common pattern observed with newly listed companies.
For example, Coinbase opened at $380 on its IPO day and climbed to $430 shortly after, only to plunge to a record low of $30 in 2023. More recently, Webull stock jumped from $10 to $80 post-IPO and has since dropped to $11. Similarly, Robinhood rose from $35 to $84 after listing, then fell to $6.74 in 2022.
Robinhood stock jumped from $35 on its IPO day to $84 on the following day, and then lost momentum, reaching a low of $6.74 in 2022.
This performance happens as the post-IPO momentum fades and investors start to take profits. Also, the IPO hype will be followed by the fear of the December lock-up expiry, which will let insiders sell their stock. Historically, stocks drop towards the lock-up period.
