As the leading stablecoin Circle just went public with a market capitalization soaring to $22 billion, a seemingly contradictory investment logic is quietly emerging:
Although Circle primarily relies on reserve income in a high-interest-rate environment, the explosive growth potential of its future valuation may precisely depend on the Federal Reserve cutting interest rates.
Circle officially went public on Thursday local time, with an issue price of $31 per share, which has significantly risen, closing around $110 on Friday. According to the number of Class A and Class B common shares listed in the prospectus, the company's market capitalization is nearing $22 billion, with a price-to-earnings ratio skyrocketing to an astonishing 125 times.
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For many investors, traditional valuation metrics are almost meaningless. In their eyes, Circle is not a new type of bank but a bet on future possibilities. Cryptocurrency supporters generally believe that stablecoins—digital tokens representing fixed values of traditional currencies (such as the US dollar or euro)—could become a key component of the everyday financial system, such as for consumer payments.
<h2>The Dual Paradox of Interest Rates and Income</h2>
Circle's core business model is straightforward: users deposit fiat currency to exchange for USDC stablecoins, and the company primarily invests these funds in government money market funds and bank deposits to earn income.
In 2024, Circle's reserve fund size is expected to grow from $22 billion in 2023 to over $37 billion, with the average yield rising from 4.89% to 5.09%. Last year, Circle's total reserve income approached $1.7 billion.
On the surface, high interest rates seem beneficial for Circle. However, some analysts point out that a low-interest-rate environment may be more favorable for the company's long-term development for two reasons:
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Growth in USDC circulation can easily offset lower yields: In the first quarter of this year, although the average return on reserves fell from 5.13% to 4.16%, reserve income still grew from about $360 million last year to $558 million in 2025. This is because the circulation of USDC increased from $32 billion to about $60 billion.
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Low yields drive users to seek higher returns: When the returns on holding cash (whether in digital form or bank deposits) are low, people tend to look for higher returns and are more willing to spend. This may encourage more use cases for cryptocurrencies and stablecoins.
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In short, in the current market atmosphere filled with expectations for stablecoins, Circle's true value may not lie in short-term reserve income but in its potential for exponential user base expansion in a low-interest-rate environment.
<h2>Distribution Costs and Key to Future Growth</h2>
Reserve income does not directly translate into Circle's profits. In 2024, the company paid over 60% of its reserve income as distribution and transaction costs, including payments to Coinbase—the latter partnered with Circle to launch USDC and help expand its appeal and usage
As Circle reduces its reliance on Coinbase or other partners, it may lower distribution costs. In its IPO prospectus, Circle stated: &#34;If the proportion of USDC held on the Coinbase platform continues to increase in the future, our growth in distribution costs may exceed the growth in reserve income.&#34;
As more USDC exists outside of Coinbase, Circle will be able to retain a higher proportion of reserve income, which may offset the decline in reserve yield.
Circle is also increasing revenue sources beyond reserve income, including new products such as transaction services related to stablecoin liquidity. These other revenues accounted for approximately 3.6% of total revenue in the first quarter of 2025, up from about 1.5% a year earlier.
At Circle's current valuation level, expanding the USDC user base should be a top priority for investors, especially as many other issuers are also trying to take advantage of the current friendly attitude of the Trump administration towards cryptocurrencies (especially stablecoins)

CRCL

In the current market atmosphere filled with expectations for stablecoins, the true value of Circle may not lie in short-term reserve income, but in its potential for exponential user base expansion in a low-interest-rate environment

- Circle, a leading stablecoin issuer, saw its market value soar to $22 billion upon its IPO, with shares rising from $31 to around $110.  
- Despite high interest rates benefiting its reserve income, analysts suggest that a lower interest rate environment could enhance Circle's long-term growth by increasing USDC circulation and driving users to seek higher returns.  
- The company is also working to reduce distribution costs and diversify its revenue sources, aiming to expand its user base amid a favorable regulatory climate for cryptocurrencies.

"First Stock of Stablecoin" Circle: The higher the interest rate, the better the returns? Not entirely so