Circle Stock Eyes $100 as USDC Supply Slips and Arc Activity Cools

Circle stock remained under pressure in October as investors assessed slowing growth in USDC circulation and changing Treasury yields. Shares traded near $85 in the reported market snapshot, below September’s $103.25 high.

The company also faced mixed activity across its Arc blockchain ecosystem. While decentralized exchange volume weakened, Arc’s stablecoin capitalization continued increasing.

However, technical analysis identified a possible falling wedge formation that could support a recovery toward $100 if confirmed.

Circle Stock Pressured as USDC Supply Falls

Circle Internet Group has several services, including USDC, its stablecoin, USYC, its tokenized money market fund, Circle Payments Network, and Arc. However, for now, USDC is its biggest cash generator, with the company using its revenue to fund the development of other solutions.

Circle operates like a bank: people buy USDC, and the company invests the funds in short-term government bonds. Banks do the same thing, only that they are allowed to invest their clients’ funds in other areas like commercial paper and lending.

Therefore, Circle’s revenue depends on two things: USDC reserves and interest rates. In an ideal situation, the company’s revenue jumps when the USDC supply is rising and short-term government bonds are rising.

Recently, however, as the chart below shows, USDC supply has been declining, down from $80 billion in March to $72 billion today. This supply attempted to rebound a few months ago, only for the process to lose traction this month.

One potential reason for the USDC market cap drop is that the crypto market rally has stalled recently, with Bitcoin and top altcoins being in the red. Bitcoin has dropped from its monthly high of $87,200 to $84,000 today.

The falling USDC market cap means that the company’s revenue growth will be under pressure in the near term. Indeed, analysts expect the November earnings report to show that its revenue rose by just 6.25% to $785 million.

US Bond Yields are Falling

In addition to falling USDC market cap, the company is facing the challenge of the US bond market. While bond yields have been in a strong rally this year, there are signs that the momentum has stalled.

The ten-year yield dropped to 5.125% from this year’s high of 5.35%. Most importantly, the three-month yield has dropped to 4.18%. This means that the company is now making less money.

On the positive side, fundamentals suggest that US bond yields have more room to go. For one, US inflation remains sticky, while the US public debt has continued rising this month.

Meanwhile, Arc Blockchain is losing momentum in some metrics. Its total value locked has dropped to $530 million from a record high of $564 million.

Its weekly DEX volume has continued to fall, down from a September high of $437 million to $222 million last month. The number of active addresses has dropped to 22,360 from a record high of over 46k. The only positive metric is its stablecoin market cap that has jumped to over $750 million.

Circle Stock Price Technical Analysis

The daily chart suggests that the CRCL stock has more upside to go. It has formed a falling wedge pattern, which is made up of two descending and converging trendlines. This pattern normally leads to a strong bullish breakout.

The wedge formed after the stock jumped, indicating a bullish flag pattern, a common continuation sign. Also, the Supertrend indicator has remained in the green. Therefore, the stock is likely to see a strong bullish breakout, potentially reaching the psychological level of $100. A jump above that level will point to more gains.

This article is for informational purposes only and does not constitute financial or investment advice. Stocks and cryptocurrency-related businesses involve substantial market risks and potential capital losses. Investors should conduct independent research and consult a qualified financial adviser before making investment decisions.