Analysts Warn: Slowing USDC Growth and Surging Costs Threaten Circle’s Dominance

Circle's golden goose might be losing feathers. The stablecoin giant faces a double-whammy as USDC adoption slows and distribution expenses climb—just when crypto needs rock-solid dollar pegs most.

Growth hits a speed bump

Once the unstoppable force in stablecoins, USDC's expansion is cooling off. Rivals smell blood in the water as Circle's distribution network—formerly its killer advantage—now drags on margins. Who knew printing digital dollars could get so expensive?

The irony? This comes as TradFi institutions finally warm to crypto. Wall Street wants stablecoins, just not necessarily Circle's. The company's now stuck between retail users fleeing to cheaper alternatives and institutional clients demanding enterprise-grade infrastructure at consumer prices.

Circle's crossroads moment

Next moves will prove crucial. Double down on compliance (and costs)? Or chase growth with risky partnerships? Either way, the stablecoin wars just got interesting—because nothing unites crypto like watching a top player stumble. After all, schadenfreude is the real decentralized finance.

Rising Costs and Competitive Pressures

While USDC grew 6% quarter-to-date, Circle has previously set expectations for a 40% compound annual growth rate. This slower pace has raised concerns about whether the company can sustain its ambitious expansion targets.

One area of concern highlighted by Mizuho is the rising cost of distributing USDC. The analysts noted that distribution expenses have climbed from 39% of the reserve pool in 2022 to 61% in 2024, with the second quarter figure reaching 64%. Higher costs can limit profit margins, especially if revenue growth slows.

The analysts also pointed to increased competition following the introduction of the GENIUS Act, which could pave the way for more institutions to issue their own stablecoins.

Tether, the largest stablecoin issuer by market capitalization, is reportedly planning a return to US markets. The combination of regulatory shifts and heightened competition could put additional pressure on Circle’s market position.

Interest Rate Sensitivity and Market Outlook

Circle’s earnings are also heavily influenced by US interest rates. With the US Labor Department reporting a 2.7% year-over-year increase in the Consumer Price Index (CPI) for July, slightly below market expectations, speculation has grown that the Federal Reserve might cut interest rates in the NEAR term.

Mizuho noted that while lower inflation is positive for the broader economy, it could weigh on Circle’s earnings, which benefit from higher interest rates on its reserves.

In their client note, Mizuho estimated Circle’s 2027 EBITDA below consensus levels, applying a market multiple of 23x, in line with peers such as Visa, Coinbase, and Robinhood, to arrive at a price target of $84 per share.

Their bear case scenario, which assumes slower USDC growth at a 15% CAGR and lower interest rates, projects a potential decline to $40 per share.

Circle’s performance over the next several quarters will likely depend on how effectively it can address rising costs, navigate a competitive stablecoin environment, and adapt to changes in interest rate policy.

For now, the company remains one of the largest players in the stablecoin market, but the balance between growth, cost efficiency, and market share retention appears increasingly critical for its medium-term trajectory.

Featured image created with DALL-E, Chart from TradingView