There exists a class of companies that thrive when global conditions deteriorate: defense contractors, oil conglomerates, gold miners. These are well-known archetypes whose business models are inherently built on instability, transforming such risk into pricing power.

Circle does not belong to this category. Its token was designed from the outset to maintain perpetual parity with one U.S. dollar. Stability is the entire purpose of its product.

Yet Circle’s stock has surged from $49.90 on February 5 to approximately $123 today—more than doubling in just five weeks. Meanwhile, the broader cryptocurrency market remains 44% below its October peak from last year.

A company whose core mission is price stability has become the hottest trading asset in the market precisely because the world has grown more volatile.

This article will explain the underlying reasons for this phenomenon and reveal the divergence between Circle’s true nature and its current market valuation.

What Is Circle, Really? (Let’s Get Back to Fundamentals)

Strip away branding, payment narratives, and infrastructure references—you’re left with: Circle holds U.S. Treasury bonds.

Every USD in circulation for USDC is backed by one dollar in short-term government securities held in reserve. The interest generated by these debts accrues entirely to Circle. This accounts for roughly 90% of the company’s quarterly revenue. Once you grasp this, its business model becomes clear: Circle is a stablecoin-issued money market fund.

This means a key metric for Circle’s revenue is the federal funds rate. When rates are high, Treasury yields rise, and Circle earns more per circulating USDC. When rates fall, earnings contract. Everything else is merely scale.

Here’s the chain reaction behind a 150% rebound from February’s lows:

According to @finance.yahoo, the Iran conflict drove a ~35% surge since February 28. A move above $100 signaled excessive fear—and excessive fear implies the Fed may delay rate cuts. The March 18 decision to hold rates steady was never seriously questioned.Even before the war erupted, CME FedWatch showed a probability exceeding 90% that rates would remain unchanged.

The real shift was in expectations for 2026. Prior to the conflict, markets priced in two 25-basis-point rate cuts. Afterward, that expectation dropped to one, and was pushed further out—delayed until after September. The probability of no cuts in 2026 nearly doubled. With rates sustained at higher levels for longer, the cycle of Treasury reserves continues generating yield. Higher yield means higher revenue, which translates into higher stock price.The war broke out—and a stablecoin issuer became the beneficiary. This outcome was never modeled by anyone.

Contextual note: The bearish logic that kept Circle’s stock capped at $49 in February was fundamentally a bet on rate cuts.

At the time, markets expected multiple rate cuts by the Fed in 2026, directly compressing Circle’s treasury income. Roughly speaking: at the current $79 billion USDC supply level, each 25-basis-point cut would cost Circle annual revenue between $40 million and $60 million. Two cuts by year-end could erase nearly $100 million in top-line income. The war rendered that calculation obsolete overnight.Not because Circle changed—but because the macro backdrop underpinning that argument no longer existed.

How the Short Squeeze Began

While the rate story supported the stock rally, the initial surge originated from positioning.

Before releasing Q4 results on February 25, approximately 17.8% of Circle’s float was shorted. Hedge funds had established large bearish positions. Their thesis: rates would eventually fall, domestic income would shrink, and the company’s profitability wasn’t anchored to a floor of interest rates. From a fundamental perspective, this was hard to refute.

Additionally, Circle reported first-quarter earnings of $0.43 per share, far surpassing the consensus estimate of $0.16. Revenue reached $770 million, against an expected $749 million. On-chain USDC transaction volume grew nearly 12 trillion dollars quarter-over-quarter and increased 247% year-over-year. Shorts covered. The stock surged 35% in a single day. According to 10x Research data, hedge funds incurred estimated losses of $500 million on their short positions that day. Subsequently, the war picked up momentum from the earnings release.

Coinbase’s Role

Here’s a crucial update to the narrative.

Circle posted a $70 million loss in 2025—not a profit. While Q4 performed strongly, the full-year picture differs. To understand why, you must grasp its relationship with Coinbase—the most important and most underestimated fact in Circle’s business.

When USDC launched in 2018, Circle and Coinbase formed a joint consortium to manage it. That consortium dissolved in 2023, granting Circle full control over USDC issuance. However, Coinbase retained a revenue stream.

Coinbase captured 100% of the yield from USDC reserves held on its platform; the rest of the income was split 50/50 with Circle. In 2024, this arrangement directly allocated $908 million of Circle’s total $1.01 billion distribution costs to Coinbase.

Roughly speaking, for every dollar in Circle’s capital, 54 cents flowed to a company that neither issues tokens nor manages reserves. As of early 2025, Coinbase held 22% of the total USDC supply—up from 5% in 2022. The more USDC grows on Coinbase’s platform, the greater the share Circle must pay out.

According to @q4cdn.com, this partnership renews automatically every three years, and Circle cannot unilaterally exit. Any future renegotiation will directly impact Circle’s margins. In Q4 2025 alone, distribution costs hit $461 million—a 52% increase from the prior period.

The $70 million net loss for 2025 includes $424 million in IPO-related expenses and share-based compensation,making the headline numbers appear worse than the actual operational performance. But the underlying business still faces a structural cost issue—one that no interest rate environment can fully resolve.

Markets price Circle as infrastructure. Yet the P&L shows it as an interest-rate play burdened with expensive distribution costs.Both views can coexist. They simply reflect different pricing logics—and right now, the market is paying for both “best versions” simultaneously.

Why This Isn’t Just a Macro Trade

USDC’s supply recently hit a record high of $79 billion, while the broader crypto market has plummeted 44% from its October peak. This contrast demands reflection. When markets decline, speculative assets typically fall. USDC’s growth reflects actual usage—not just speculation.

Demand for USDC surged in the Middle East during the Iran conflict precisely because traditional banking systems became unreliable. When normal channels fail, people turn to it for cross-border and international transfers.This is how payment infrastructure performs under stress: usage increases, not decreases.

Transaction data confirms this. In February alone, USDC processed approximately $1.26 trillion in adjusted transaction volume—compared to $514 billion for USDT. Tether (USDT) still has a market cap of $184 billion, while USDC stands at $79 billion. By total supply, they are not comparable. But USDC’s active volume now exceeds that of USDT.

As noted by @visaonchainanalytics, “sleeping supply” and “active settlement” are distinct concepts. Previous data indicated where dollars were parked; recent data shows which dollar is used when value needs to be transferred.

Druckenmiller made relevant comments this week. In a Morgan Stanley interview recorded January 30 and released Thursday, he predicted global payments systems would run on stablecoins for 10 to 15 days annually—and described crypto as “a solution looking for a problem.”

The world’s most trusted macro investor divides the space into two parts: stablecoins represent foundational infrastructure, while everything else is still searching for a reason to exist. This framework lends credibility to the bullish case.

The Infrastructure Premium

Tokenized assets have grown from around $1.5 billion in early 2023 to approximately $26.5 billion today. Many of these products—including BlackRock’s tokenized Treasury fund BUIDL, which holds over $2 billion in assets—rely on USDC for subscription, redemption, and settlement processing.

Forecast markets handled over $22 billion in volume in 2025, mostly settled via USDC (Polymarket alone accounted for much of it). Visa currently supports over 130 stablecoin-linked cards across 50 countries, with annual settlement volume of about $4.6 billion.

Circle is building the infrastructure beneath all of this. The Circle Payments Network connects 55 financial institutions and processes $5.7 billion in annualized volume, enabling banks and payment providers to convert USDC cross-border and settle directly into local currencies.

Arc is Circle’s proprietary Layer-1 blockchain, designed to fully support institutional systems.This stack operates independently of Ethereum or Solana as a settlement infrastructure. While Ethereum and Solana currently contribute little to revenue, they represent forward-looking strategic positioning—if rates decline.

AI-related activity is modest in dollar terms but structurally intriguing. Data released by Circle’s Global Spend lead in March showed that AI agents completed 140 million transactions over the past nine months, totaling $43 million. Of these, 98.6% were settled in USDC, averaging $0.31 per transaction. Over 400,000 AI agents now possess purchasing power. Though dollar amounts remain small, the trend is undeniable.

If AI agents need to pay for compute, data access, and API calls in frequent, sub-second transactions, they require tools capable of instant settlement and near-zero cost. Circle has just launched Nano Payments—specifically designed for this need: supporting USDC settlements as low as $0.000001 without gas fees, settling off-chain resources in bulk. The testnet already supports 12 chains, including Arbitrum, Base, and Ethereum-native networks.

This is why the market is willing to pay $123 per share for Circle: a company at the nexus of tokenized finance, AI agent economies, cross-border payments, and prediction markets—with regulatory tailwinds from the GENIUS Act and strong odds that the CLARITY Act passes before summer. Bernstein targets $190, Clear Street $136, and Wall Street’s top harbor global target reaches $280.

The Unresolved Contradiction

Here, I want to be candid about something many bulls overlook.

Circle’s profitability depends on maintaining high interest rates. This is not a permanent condition. The Fed will eventually cut rates. At that point, the yield on USDC’s Treasury reserves will shrink, and Circle’s interest income will contract accordingly.

Circle recognizes this. It has been expanding transaction fees, enterprise services, payment network usage, and Arc—businesses that do not rely on interest rate environments. But currently, these sources remain small. Treasury yield extraction remains the core.

Thus, you’ll find two conflicting logics coexisting within the same stock price—but they are not the same bet.

The foundational thesis argues that USDC is becoming real-world payment infrastructure. Regulated, transparent, and deeply embedded in traditional finance—regardless of interest rates, this embedding creates sticky adoption. This view is supported by data: digital transaction volume, integration trends, Druckenmiller’s framework, and Macquarie’s characterization of stablecoins as the foundational layer of global financial infrastructure.

If this thesis is correct, Circle looks cheap in any interest rate environment, because its potential market is the entire global payments system.

The interest rate trade thesis sees Circle as leveraged exposure to “higher and longer” rates, with the stock price already pricing in a scenario where the Fed never cuts again. If this is the primary driver, then every future Fed rate cut becomes resistance—and the stock is already overvalued relative to a normalized interest rate regime.

Both views are priced in.The war has made it difficult to distinguish which one the market is truly buying.

This may be the most useful insight for understanding CRCL (Circle’s ticker). It’s less about whether it hits $190, and more about what you’re buying: infrastructure, or a “storyteller who turned Treasuries into a tokenized sales machine.” Early on, it’s a long-term position; later, it collapses instantly if Powell changes his mind.

For now, both sides sustain the valuation. The dollar is performing its most critical task. And in the gap between the two scenarios lies the company’s true hidden edge—it figured out how to create a dollar-denominated internet currency. Now, it’s figuring out how to survive when the dollar stops yielding 5%.