Circle still lost 200 million this year, and the interest rate cuts are unfavorable for reserve earnings, with the stock price falling 12% in a single day.

Due to market concerns that the drop in interest rates will put pressure on future earnings, overshadowing better-than-expected third-quarter revenue and profits, the stock price of stablecoin issuer Circle plummeted by 12%. Although CEO Jeremy Allaire stated that the drop in interest rates helps promote the adoption of Circle's full suite of products, four analysts, including Mizuho Securities analyst Dan Dolev, believe that CRCL is overvalued and have given it a “sell” rating. In addition, due to a significant increase in IPO equity incentive expenses, Circle has accumulated a loss of $200 million this year.

The drop in interest rates is unfavorable for Circle's earnings, and CRCL's stock price fell by 12%.

Due to market concerns that the drop in the Interest Rate will put pressure on future earnings, overshadowing the better-than-expected third-quarter revenue and profits, stablecoin issuer Circle's stock price fell 12%, marking the largest drop since June.

(Circle Q3 financial report is here: USDC circulation doubles, net profit soars 202%)

Despite Circle's USDC stablecoin circulation growing more than double compared to the same period last year, and revenue increasing over 66% as a result, the company pointed out on Wednesday that as of September 30, its reserve interest rate has dropped by 96 basis points compared to the same period last year, from 5.11% to 4.15%. Most of Circle's profit comes from interest income on its holdings of U.S. government bonds, which are used as reserves for its stablecoin.

CEO Allaire: Dropping the Interest Rate helps promote the full range of Circle products.

The company is continuously expanding its revenue sources by launching new products such as a blockchain-based payment network and tokenized currency market funds. CEO Jeremy Allaire stated in an interview with Bloomberg after the quarterly earnings release that lowering the Intrerest Rate will help drive the adoption of Circle's full suite of products.

“When interest rates drop, there is more investment capital in the economy, and the velocity of money circulation increases. With the formation of these two factors, it will actually create a strong tailwind for the adoption of this new type of currency and this new type of technology.”

Circle officially launched the public testnet of its own L1 blockchain Arc, with participation from over 100 institutions including banks, payment providers, asset issuers, and technology companies, featuring heavyweight firms such as Deutsche Börse Group, Finastra, Visa, and Fireblocks.

Allaire pointed out that although the reserve interest rate has decreased, the circulation of USDC is rapidly increasing as the company adds new partners to its network.

“Interest rates are not the determining factor for actual income; network growth and adoption are the keys to determining income.”

Due to the significant increase in IPO equity incentive expenses, Circle is still losing 200 million USD this year.

Although Circle's revenue has continued to grow this year, it still incurred a loss of 200 million USD by the end of September, primarily due to stock-based compensation expense (Compensation expense). Some of the restricted stock units granted to employees by Circle include service conditions and performance conditions related to liquidity events, which were achieved at the time of the IPO, resulting in the company recognizing 423.8 million USD in stock-based compensation expense.

Circle reported a stock-based compensation expense of $59 million in the third quarter, which reflects the company's significant investment in talent but also brings a considerable burden to the company.

CRCL has dropped 70% since its IPO surge.

Circle was officially listed on June 5th, with an issuance price of 31 USD per share. After listing, it once surged to 298 USD, an increase of up to 8.6 times, but has now fallen more than 70% from its historical high.

Mizuho Securities analyst Dan Dolev believes that Circle is overvalued and has given it a sell rating. According to Bloomberg's analysis, 4 analysts have given a “sell” rating, while 11 analysts have given a “buy” rating, and 10 analysts have given a “hold” rating.

This article states that Circle is still losing 200 million this year, and the drop in interest rates is unfavorable for reserve earnings, with the stock price experiencing a big dump of 12% in a single day, first appearing on Chain News ABMedia.