Circle’s 48% stock rout will get worse with rate cuts and slow growth, analysts say

Future interest rate cuts from the Federal Reserve could wreak havoc on the stablecoin issuer’s revenue, according to Omar Kanji, a partner at crypto venture firm Dragonfly.

A 1% cut in interest rates will slash Circle’s revenue by a whopping $618 million, a 23% drop, Kanji said in a X post.

The reason? A large part of Circle’s revenue comes from the short-dated government bonds it holds to back the $65 billion worth of USDC in circulation, Kanji argued. When the Fed lowers interest rates, the return on those bonds falls in step, squeezing Circle’s bottom line.

To offset the impact, Circle needs to have the USDC supply grow by $28 billion, or 44% of its current supply, to stay neutral, Kanji said.