Circle's bearish report is here! JP Morgan: The profit model's "scissors gap" devours profits, even with a 10% "emotional premium," it's only worth $80

Will the stock price frenzy of American stablecoin giant Circle come to an abrupt end?

According to news from the Chasing Wind Trading Desk, JP Morgan released a significant initial coverage report on Circle on Monday, warning that its valuation is excessively high and has moved out of the comfort zone, assigning a "reduce" rating with a target price of $80, a substantial downward adjustment of 56% from the current stock price of $180.

The report pointed out that Circle faces multiple challenges. Firstly, its valuation is high; despite optimism about Circle's leading position in the stablecoin market and the growth prospects of USDC, the company's current valuation has been pushed "beyond the comfort zone." It noted that even with an additional 10% "sentiment premium," the value would only be $80.

At the same time, JP Morgan warned that the downward trend in interest rates and rising distribution costs create a "scissors gap" that erodes profits. Circle's business model is highly dependent on interest rate changes, with 97% of its revenue coming from reserve income, making the company's profitability highly susceptible to fluctuations in monetary policy. Additionally, rising distribution costs may reduce gross margins from 39% to 34%.

Furthermore, Circle faces fierce competitive threats, particularly from new entrants that may seek to capture market share by offering yields, as the switching costs in the stablecoin business are relatively low. Once the "winner takes all" market structure is disrupted, Circle's economic benefits will be significantly impaired.

Valuation Bubble Emerges: 482% Increase Since IPO Triggers Warning

Since its IPO at a price of $31 on June 4, Circle's stock price has soared by 482%, reaching a market capitalization of $40 billion.

JP Morgan has set a target price of $80 for Circle, a significant downward adjustment of 56% from the closing price of $180 on June 27, clearly reflecting the investment bank's deep concerns about the current valuation.

The $80 target price set by JP Morgan is based on a 45 times price-to-earnings ratio of an adjusted earnings per share of $1.56 for 2027, plus a $10 "investor enthusiasm premium."

Analysts stated that the current stock price fully reflects extremely optimistic growth assumptions, including the stablecoin market growing to $18 trillion by 2036 and USDC's market share increasing to 40%.

Business Model: High Distribution Costs + Interest Rate Sensitivity Erodes Profit Margins

JP Morgan stated:

Circle's profit model primarily relies on reserve investment income, but about two-thirds of its revenue needs to be paid to partners promoting USDC. As the company signs more distribution agreements with platforms, this proportion will rise to 70%, leading to a decline in gross margins from the current 39% to 34%.

Among them, Coinbase is Circle's largest distribution partner, receiving $908 million in revenue share in 2024, accounting for 55% of Circle's reserve income. According to the cooperation agreement, Coinbase can receive 100% of the reserve income corresponding to its platform's USDC balance, as well as 50% of the remaining income from other platforms.

Analysts indicate that this high distribution cost structure puts Circle at risk of "race to the bottom" competition. If market competition intensifies, the company may need to pay a higher proportion of revenue to maintain partnerships, ultimately reducing to a low-margin business similar to money market funds.

Secondly, Circle's business is extremely sensitive to interest rate changes. JPMorgan estimates:

With the current circulation of approximately $60 billion USDC, a 100 basis point decrease in interest rates would result in an annualized impact of approximately $600 million and $200 million on reserve income and adjusted EBITDA, respectively.

Analysts expect that Circle's reserve yield has peaked in 2024 and will gradually decline to a steady state level of 3.00%. This means that unless the circulation of USDC increases significantly, the company's profitability will face ongoing pressure.

However, declining interest rates may also stimulate demand for stablecoins. JPMorgan points out that in a low-interest-rate environment, developers and builders are more willing to innovate within the blockchain ecosystem, which may drive an increase in USDC usage.

The "winner-takes-all" model will not last forever

Circle is currently the second-largest stablecoin issuer in the world, with a market value of approximately $61.7 billion USDC, holding about 25% of the dollar stablecoin market, second only to Tether's USDT. JPMorgan notes that USDC is the "most regulatory-compliant" stablecoin, fully compliant with the EU's MiCA regulations and expected to meet the upcoming U.S. stablecoin regulations.

JPMorgan believes that the network effects and compliance brand built by Circle are its core competitive advantages. The company has established strong USDC inflow and outflow channels through distribution agreements with major cryptocurrency exchanges such as Coinbase and Binance. At the same time, Circle entrusts 85% of its reserve funds to BlackRock for management, with the remaining 15% deposited in globally systemically important banks, ensuring the safety of funds.

However, JPMorgan emphasizes:

The "winner-takes-all" pattern in the stablecoin market may not last forever. New entrants are attracting users by offering higher yields, while products like tokenized money market funds are also encroaching on traditional stablecoin use cases.

Despite facing numerous challenges, JPMorgan remains optimistic about Circle's long-term growth prospects. The U.S. Congress is expected to pass the "GENIUS Act" in July, providing a clear regulatory framework for the stablecoin industry. As the most compliant stablecoin issuer, Circle will benefit from this Internationalization also provides Circle with vast growth opportunities. In high-inflation countries like Argentina and Turkey, USDC is increasingly being used as a store of value. JP Morgan estimates that the total M2 money supply in the world's nine largest high-inflation countries is $1.4 trillion, and for every 1 percentage point increase in USDC penetration, the circulation will increase by approximately $14 billion.

Whether Circle Can Become the "Stablecoin Version of Swift" is Key

The Circle Payments Network (CPN), launched by Circle in May 2025, is seen as a key initiative in the company's strategic transformation. CPN aims to integrate stablecoin functionality into existing banking channels, focusing first on B2B cross-border payments and consumer remittances.

JP Morgan stated:

The B2B cross-border payment volume reached $37 trillion in 2023, providing a huge potential market for CPN. CPN allows third-party developers to build advanced modules and automate financial workflows directly on its platform through smart contract infrastructure and modular APIs.

However, it is crucial to closely monitor whether Circle can secure sufficient resources in the B2B e-commerce and Southeast Asian cross-border payment sectors, and whether the success of traditional payments like Visa and Mastercard also relies on USDC.

If Circle can achieve this goal, it is expected to become the "stablecoin version of Swift"; otherwise, it may become the "most sensitive in business and weakest in pricing power" among multilateral stablecoin issuers.

JP Morgan pointed out that corporate clients typically avoid holding large amounts of non-yielding assets, and it is expected that approximately $5 billion in dollar balances will support an annualized transaction volume of $1 trillion (about 3% of global cross-border payments). Currently, Circle has not yet generated revenue from CPN but plans to charge a few basis points in transaction fees as it scales