Circle’s Major Bear Has Given Up, but Cautions That the Stock Remains a Crypto Roller Coaster

Circle’s Recent Stock Upgrade: Insights from Wall Street

Circle (CRCL), the issuer behind the popular stablecoin USDC, recently experienced a notable shift in analyst sentiment, culminating in a stock upgrade from Ed Engel of Compass Point. This shift is particularly significant given Engel’s previous stance, where he held the lowest price target among analysts and a sell rating.

A Shift in Ratings

Just a day after Dan Dolev from Mizuho revised his bearish perspective on Circle, Engel upgraded the stock to a Neutral rating. Yet, he still holds the distinction of maintaining the most conservative price target in the sector. Engel’s new target is set at $60, reduced from his previous estimate of $75, attributing this adjustment to what he describes as a "premium valuation." This nuanced outlook indicates that while optimism is creeping in, caution still prevails.

Market Responses

In the immediate wake of Engel’s upgrade, Circle’s stock experienced volatility. It dropped by 7.3% during regular trading hours, landing at $67.55, but demonstrated a slight recovery with a 1% increase in post-market trading. This rollercoaster response underscores the fragility of investor sentiment surrounding the stock.

Changing Narratives

Engel’s upgrade reflects a shifting narrative; he now considers Circle’s stock to operate more as a proxy for the fluctuating cryptocurrency markets than as an independent fintech entity. This perspective drastically diverges from Engel’s previous position, where he downgraded Circle in July due to heightened competition in the stablecoin space. His revised stance suggests that many of his earlier concerns have already been absorbed by the market.

Legislative Hopes

Engel remains hopeful about potential legislative changes that could bolster Circle’s position in the market. He highlights the prospective passage of the CLARITY Act in 2026, which he estimates has a 60% chance of becoming law. If enacted, this legislation would provide clearer regulatory guidelines for stablecoins, likely enhancing USDC’s supply and stability in the long run.

Moreover, Engel points out an emerging trend: tokenization of U.S. stocks and ETFs within decentralized finance (DeFi) markets. This development could reduce Circle’s dependence on the overall crypto market sentiment, allowing USDC to carve out a more stable niche.

The Cyclical Nature of USDC

One of Engel’s fundamental observations is that Circle’s stock is beginning to mirror a cyclical stock narrative. Since a significant market dip in October, USDC has shown a strong correlation with ether (ETH), with stats indicating a correlation coefficient of 0.66. Engel attributes this trend to the fact that over 75% of USDC is being used in high-risk crypto trading or lending applications. Thus, despite being marketed as a “stablecoin,” USDC’s value remains intricately linked with the volatility of the cryptocurrency market.

Premium Valuation Concerns

Engel’s skepticism partly arises from Circle’s premium valuation, particularly in today’s climate of market volatility. Given the high-risk nature of its asset class, he argues that the current stock price reflects an optimistic bullish sentiment that may not align with the cyclical realities of the crypto economy.

Competition Intensifies

The landscape of stablecoins is rapidly evolving, bringing several challenges to Circle. Engel notes that USDC’s supply has decreased by 9% since December, with competitors like USDH, CASH, and PYUSD beginning to claim market share—especially on platforms such as Solana and Hyperliquid. This competition is not solely limited to other stablecoins; traditional financial institutions such as JPMorgan, State Street, and BNY Mellon are also venturing into “deposit coins,” intensifying the competitive pressure on USDC in more developed markets.

Moreover, Engel raises concerns that Circle may underestimate its operating expenses for 2026, suggesting that ongoing investments might not yield significant revenue in the near future. This adds another layer of uncertainty regarding Circle’s immediate financial outlook.

Speculative Links

Ultimately, Engel concludes that Circle’s revenue trajectories are deeply tied to speculative activities within the crypto space. Although he acknowledges potential upside from a recovery in crypto markets or improved regulations, he posits that a substantial separation from these volatile cycles might be years away. This insight portrays Circle as navigating a precarious balancing act between innovation and inherent market risks, making its future both dynamic and uncertain.