After a notable debut on the Nasdaq earlier this year, Circle (CRCL), the issuer of the stablecoin USDC, saw a significant decline in the value of its shares. After hitting a high of $298 on June 23, just 18 days after launch, shares fell 68%, trading around $82.
Circle faces challenges as lock-up period approaches
Although it benefits from looser regulation of digital assets in the United States thanks to President Trump’s crypto policies, Circle faces challenges that history does not favor, particularly as it nears the end of its lock-up period.
Analysts including Mizuho’s Dan Dolev have pointed out that this lock-up period prevents insiders from selling shares, typically for 180 days after an IPO.
Circle’s initial public offering (IPO) filing indicated that this lock-up period was set to expire two days after the company released its third-quarter results, which was this Friday.
Mizuho’s analysis of more than 750 IPOs with market caps exceeding $1 billion reveals that 58% of companies that outperform the S&P 500 before their lock-up period tend to underperform the index in the 180 days afterward. These companies are experiencing an average decline of around 2%.
The outlook is even bleaker for companies with lower-than-expected revenues in the year following their IPO, which tend to experience an average negative return of around 10% relative to the S&P 500 index.
Circle could find itself in the latter category according to Mizuho. A significant portion of the company’s revenue comes from interest on USDC reserves held in short-term U.S. Treasury bonds, Treasury repurchase agreements, and cash.
Therefore, a decline in interest rates or slower than expected growth of USDC could negatively impact revenue streams. Dolev noted:
In our view, CRCL is likely to see downward revisions to consensus estimates over the coming years amid falling rates and less dramatic proliferation of its stablecoin USDC, as well as increasing distribution costs.
Is CRCL a cheap buying opportunity?
Despite these potential downward adjustments, Circle recently beat consensus estimates for revenue and earnings in its third-quarter report.
Following this announcement, JP Morgan issued a double upgrade of the stock from underweight to overweight, increasing its price target from $94 to $100. The bank highlighted the continued acceptance of stablecoins within traditional financial institutions, with USDC being a major player in this space.
However, the impending expiration of the hold has already put downward pressure on Circle shares, according to JP Morgan analyst Kenneth Worthington.
He views the current situation as a “buying cheap opportunity” for investors, suggesting the stock’s post-lockdown decline may have taken it to levels below its December 2026 price target, indicating future upside potential.
Featured image of DALL-E, chart by TradingView.com
