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Author: Jack Inabinet, Source: Bankless, Compiled by: Shaw Bitchain Vision
Stablecoin issuer Circle (CRCL) soared all the way in June, with its share price approaching $300, cementing its reputation as a high-priced crypto stock.However, as the summer progresses, the seasonal downturn ultimately affects the stock.
Although the stock rose 7% after Jerome Powell’s rate cut comment last Friday, its share price has been falling in the past month, with its current share price falling nearly 60% from its all-time high.
Today, we will explore the problem of interest rate cuts faced by stablecoins and weigh the impact of monetary policy shifts on the future of CRCL.
Interest factor
Circle adopts a bank-like business model: it makes profits based on interest.
More than $60 billion in bank deposits, overnight loan agreements and short-term U.S. Treasury bonds support USDC.In the second quarter of 2025, Circle received $634 million in revenue from interest on these stablecoins reserves.
When interest rates rise, the portfolio earns more interest for every dollar of USDC reserve assets held by the portfolio.On the contrary, when interest rates fall, their returns decrease.While market forces drive interest rates, the cost of the dollar is also affected by Fed policies, especially for short-term tools Circle uses to manage its reserve assets.
In a speech at Jackson Hall last Friday, Fed Chairman Jerome Powell made a strong hint.
Powell believes any residual inflation is caused by a one-time tariff surge, stressing that the labor market is slowing and defending a possible rate cut, which currently expects the Federal Reserve to announce a rate cut at its September 17 policy meeting.
The forecasts of the likelihood of rate cuts by FedWatch and Polymarket, the Chicago Mercantile Exchange (CME), both rose sharply after Powell’s speech, but the sharp changes in probability occurred on August 1.Employment data released on the same day showed that there were only 73,000 new jobs in July, and the data for the first two months was significantly revised downward.
Since August 1, both CME’s FedWatch and Polymarket have firmly predicted a 25 basis point cut (0.25%) rate cut, and Circle’s revenue will drop overnight if the Fed continues to cut rates as expected.
According to Circle’s own financial forecast, the company expects $618 million in interest income to lose every 100 basis points (1%) of the federal funds rate, meaning its revenue will drop by $155 million if interest rates are cut by 25 basis points (standard amplitude).
Fortunately, half of these revenue losses will be offset by reducing distribution costs – consistent with an agreement between Circle and Coinbase, which distributes about 50% of all USDC reserve interest income to Coinbase – but the fact is that Circle is becoming increasingly difficult to operate in an environment with falling interest rates.
Although Circle reported a net loss of $482 million in the second quarter, much lower than analyst expectations, the main reason for this unexpected difference was its $424 million accounting write-offs due to employee stock compensation at the time of its IPO.
Even so, Circle’s financial situation highlights the vulnerability of the near-break-even company that cannot withstand the impact of a sharp drop in interest rates at current USDC supply levels.
Solution
The drop in interest rates may result in a decrease in interest earnings per dollar reserved by Circle and damage profitability, but for CRCL stock holders, it is fortunate that changing a simple variable can completely reverse this result.
Jerome Powell and many financial commentators firmly believe that interest rates are already in a “sustaining” state, and that the Fed’s fine-tuning of interest rate policies can not only cope with the weakness in the labor market, but also control inflation.
If these experts predict accurately, interest rate cuts could lead to economic recovery, by which time employment levels remain high, credit costs decline, and cryptocurrency markets would rise sharply.If such optimistic expectations come true, demand for crypto-native stablecoins could rise, especially if they can provide DeFi native earnings opportunities higher than the market.
To offset the negative impact of the 100 basis point cut (the lowest level considered in the Circle rate cut sensitivity analysis seen above), the amount of USDC in circulation needs to increase by about 25%, which requires a $15.3 billion cash injection into the crypto economy.
Circle currently has a 192x P/E ratio, based on net profit in 2024, which suggests it is a high growth opportunity.However, while stocks are optimistic that CRCL can achieve expected growth, if the Fed cuts interest rates in the coming weeks, the stablecoin issuer will need to achieve growth in order to survive.
Assuming the Fed cuts interest rates by at least 25 basis points, Circle needs to increase USDC supply by about $3.8 billion to maintain current profitability.
Circle once said: “Any relationship between interest rates and USDC in circulation is complex, highly uncertain, and unproven.” There is currently no model that can illustrate how USDC customers’ behaviors respond to lower interest rates, but history has repeatedly shown that once triggered, the rate cut cycle will advance at a radical pace.
While Circle has the potential to get rid of interest rate-driven deficit dilemma in the context of a boom, the company clashes with the dynamic trends of low interest rates in terms of mathematical calculations.
