Summary Circle Internet Group, issuer of USDC, faces volatility amid stablecoin regulatory uncertainty but remains up ~20% YTD. I view the recent ~30% pullback from March highs as a buying opportunity, reiterating my buy rating. CRCL's revenue model leverages reserve returns and yield-sharing, with payments and subscription growth as the key upside catalyst. Base case points to substantial adjusted EBITDA growth for CRCL this year, supported by expansion into its payments network. Over the past few weeks, there has been a lot of volatility around stablecoin regulation. Big banks are pushing against the ability of stablecoin issuers and the blockchain platforms like Coinbase ( COIN ) that distribute them to offer yield, arguing that it would lead to deposit instability at traditional banks. Eliminating or capping yields would hugely impede market cap growth, which is the main way stablecoin issuers are growing revenue. Though Circle Internet Group ( CRCL ), the issuer of the #2 stablecoin USDC (which has reached over $75 billion in total circulating market cap), is still up ~20% this year, the stock has been hit with volatility and is trading down ~30% from March peaks above $130. I see this as a buying opportunity in the name. Data by YCharts I last wrote a buy article on Circle in January, when the stock was trading near $85 per share. Since then, I've enjoyed a nice gain on my position while many of my other small/mid-cap growth bets have stalled. That said, I think the intense focus on Circle's risks ignores the potential upsides that offset that risk, namely as the company pushes deeper into its payments network this year. As such, I'm reiterating my buy rating on this name. Base Case Points to Substantial Adjusted EBITDA Growth This Year Before we dig into more detail on what the potential upside catalysts for Circle are this year, let's first construct a "base case" P&L and valuation for Circle against the company's stated guidance assumptions, as the company's business model can be quite tricky to assess for investors newer to the name. As a reminder, Circle generates revenue in two segments. When depositors purchase USDC, Circle invests their cash into short-term U.S. treasury securities and earns a return on those assets (which it refers to as its "reserve return rate)." It then pays out a portion of this yield to distribution partners, the largest of which is Coinbase. Its net revenue after this yield-sharing program is called its "revenue less distribution costs", or RLDC. On top of yield revenue, the company also generates revenue from subscriptions and payments (which is what I view as the primary upside driver for the company), which it's currently now classifying as "other revenue." The chart below showcases Circle's guidance for FY26: Circle outlook (Circle Q4 earnings deck) Let's now build out a profitability forecast (and valuation) for Circle using these assumptions. For revenue, we assume: 40% CAGR in USDC, in line with the company's guidance of a ~40% sustained CAGR, and still decelerating sharply from 72% market cap growth at the end of Q4 to $75.3 billion. This would imply year-end circulation of $105.4 billion; if we assume market cap growth is linear throughout the year, the rough average full-year circulation is ~$90.3 billion. Two Fed rate cuts in 2026. Consensus is pointing to between 1 and 2 rate cuts (of 25bps each) through year-end. Circle ended Q4 with a reserve return rate of 3.81%. If we conservatively assume an average reserve return rate of 3.56% (-25bps from Q4's return), as the second rate cut is expected to be placed in the back half of FY26, yield against $90.3 billion of average full-year circulation would be $3.21 billion. $160 million in other revenue from payments and subscriptions, which is the midpoint of the company's $150-$170 million guidance range. These assumptions would net $3.37 billion in total revenue (+23% y/y). For reference, Wall Street analysts currently have a very wide range , from $2.92 billion in revenue (+6% y/y) to $3.48 billion (+27% y/y) in revenue. Next, for expenses: RLDC margin of 39% , the midpoint of the company's 38-40% guidance range. Note that the RLDC margin represents total distribution costs against all revenue (including "other revenue"); the "net reserve margin" which reflects expenses against reserve revenue only, is typically 2-3 points lower than the RLDC margin. A 39% RLDC margin, or 61% in distribution cost against $3.37 billion in total revenue, represents $2.06 billion in distribution cost. $578 million of adjusted opex, the midpoint of the company's guidance of $570-$585 million (20-23% expense growth versus $477.5 million in FY25), and reflecting all other expenses outside of distribution cost to get to an adjusted EBITDA bottom line. This would give us $2.64 billion in total cost, which positions FY26 adjusted EBITDA at $840 million (+44% y/y). At current share prices near $100, Circle trades at a market cap of $24.64 billion. Netting off the $2.62 billion of cash, company-owned stablecoins, and digital assets against a minor ~$37 million of outstanding convertible debt gives us an enterprise value of $22.06 billion, positioning Circle's valuation at 26.2x EV/FY26 adjusted EBITDA, against my $840 million adjusted EBITDA estimate using the assumption set laid out above. Upside Risk: Payments Opportunity is Nascent While I certainly don't think Circle is cheap against near-term adjusted EBITDA at a >20x multiple, where I think the market is misplacing Circle is in treating its core business as hoarding cash and earning yield. While it's true that this is the company's primary revenue generation method today, in the future I see Circle taking more share in payments and taking on Visa ( V ), Mastercard ( MA ), and PayPal ( PYPL ). Furthermore, I think the company's own guidance is hugely conservative on the payments opportunity. Recall that the midpoint calls for $160 million in "other revenue" this year, which is what I included in my base case adjusted EBITDA. Consider the fact that in Q4, "other revenue" totaled up to $37 million. The run rate on this revenue has been ballooning each quarter, most recently rising ~28% sequentially. Management's midpoint guidance for FY26 implies just a $40 million quarterly revenue run rate for other revenue, only 10% above Q4. Circle other revenue (Circle Q4 earnings deck) Meanwhile, the company's Arc payments network is developing rapidly. We note that in 2025, payments were only launched in a private testnet with only ~100 companies participating. Circle Arc development (Circle Q4 earnings deck) As showcased in the chart above, the company plans to launch on the "mainnet" in 2026. Given this much broader launch of Circle's payments capabilities, the company is quickly transforming itself from just a yield play to a payments powerhouse: and ~10% growth above the company's current, test net only revenue seems hugely conservative. The company also continues to emphasize that while USDC is one of many stablecoins, it's USDC that has the best infrastructure for actually being used as a payments currency. Per CEO Jeremy Allaire's remarks on the recent Q4 earnings call: You can also note that while there have been a number of other stablecoins entering the market over the past year, their usage in real transactions is effectively 0. As noted in my introductory comments, Circle's network grew strongly with 3.5x year-on-year growth in onchain transaction volume and notably, CCTP, a critical infrastructure for interoperable usage of USDC, grew 3.7x year-over-year to over $41 billion of volume in the fourth quarter. I know that competition is a major topic for many. So I want to talk again about the durable network effects that Circle maintains. Foundationally, Circle's competitive position has been built on trust, as an audited public company with a deep commitment to compliance, as a firm regulated across jurisdictions around the world and with the highest levels of transparency possible. We enjoy the trust of major financial institutions, payments companies, enterprises, developers and end users around the world." Even in its currently nascent state on testnet only, Circle has achieved $5.7 billion in annualized TPV as shown in the chart below. Circle TPV (Circle Q4 earnings deck) Meanwhile for comparison, PayPal had $1.8 trillion in TPV in FY25 (+6% y/y), of which 18% was Venmo. PayPal TPV (PayPal Q4 earnings deck) Circle has a huge opportunity to break into this expansive payments market, and this growth potential is neither reflected in the company's current guidance nor in the market's current assessment of the stock. Other Positive and Negative Risks at Play Beyond the possibility of Circle's "other revenue" being under-called in guidance this year, other upside risks against my base case include:. Fed cutting fewer than twice this year. There's also a strong chance that with macroeconomic turmoil and rising layoffs, the Fed may choose to prioritize full employment rather than tackling inflation, and cut rates less than twice this year. Higher RLDC margins. A greater proportion of revenue from "other revenue" would increase RLDC margins, as payments revenue doesn't come with the burden of paying out a 60%+ share to Coinbase. Of course, we should be aware of the potential downside risks at play as well: A delay in payments network launch. The company has only noted that it plans on launching Arc payments on "mainnet" in 2026, with no specific timing. There is a chance that delays hamper expected revenue growth. Regulation on yields. As we stated upfront, there is no consensus at the moment on how stablecoins should be regulated and if they should be allowed to pay a yield, which would impact its mainstream appeal and market cap growth. Slower than expected circulation growth. The "risk off" attitude in the markets this year has caused a drain out of all crypto-related assets, even non-volatile assets like Bitcoin - which may risk the company's target of growing circulation at a >40% CAGR, which is what my base case assumed. As of the time of writing, total USDC market cap is at only ~$77 billion, barely above where Q4 ended. Data from CoinMarketCap shown below: USDC live market cap ( CoinMarketCap ) Key Takeaways All in all, however, I think Circle's recent slide showcases that investors are overly focused on the risk side of the equation, while ignoring the very expansive opportunity for Circle to grow its TPV as its payments product expands. The next major catalyst for Circle is its Q1 earnings update, due on May 11. Stay long here and buy Circle on recent weakness.
