Compass Point Downgrades Circle to Sell, Shares Down 2%

Compass Point downgraded Circle Internet Group (NYSE:CRCL) from Neutral to Sell, slashing its price target from $205 to $130 following the recent passage of U.S. stablecoin legislation. The company’s stock fell over 2% pre-market today.

The firm cited concerns over Circle’s long-term profitability and the competitive landscape as reasons for the downgrade. While Compass Point still views Circle’s USDC stablecoin as a key component of the evolving financial system, the firm believes the company’s current $53 billion valuation is too high given looming risks. In the months ahead, Circle is expected to broaden its distribution network, but likely at the cost of sharing a larger portion of its interest income with partners, which could squeeze margins.

Compass Point also anticipates that traditional banks and fintech firms will enter the stablecoin space with competing products, further challenging Circle’s market share. These developments could prompt investors to reassess expectations for Circle’s long-term EBITDA margins and dominance in the market, potentially leading to downward pressure on the stock’s valuation.