Cathie Wood buys the dip! Ark Invest splurges 30 million to grab CRCL stocks

Despite Circle announcing strong third-quarter results, CRCL stock still fell sharply by 12.2% on November 12, closing at $86.3. However, Cathie Wood's Ark Invest purchased $30.5 million worth of Circle stock through its three exchange-traded funds. Analysts rated CRCL stock as “outperforming the market,” encouraging investors to build a position on dips.

The Dramatic Divergence Between Financial Reports and Stock Prices

(Source: Circle)

Circle announced strong Q3 results on Wednesday, with data almost universally exceeding market expectations. The company's total revenue reached $740 million, a year-on-year increase of 66%, a growth rate that is extremely rare in the fintech sector. Even more impressive is the net profit soaring by 202% to $214 million, indicating that Circle has not only achieved scale expansion but also a qualitative leap in profitability. By the end of the quarter, the circulation of USDC reached $73.7 billion, growing 108% compared to the same period last year, a figure that directly reflects the adoption and trust of USDC stablecoin in the market.

However, the market's reaction to this impressive financial report was unexpected. According to The Block's price page, after the USDC stablecoin issuer Circle announced its financial report, CRCL stock plummeted by 12.2% on Wednesday, closing at $86.3. This phenomenon of strong financial reports but a significant drop in stock prices is not uncommon in the capital markets, and there are usually several possible reasons for it:

First, the “good news fully priced in” effect. The market may have fully anticipated strong performance before the earnings report was released, with stock prices reflecting these expectations in advance. When the earnings report is actually published, even if the data is impressive, it cannot provide additional surprises, instead triggering profit-taking behavior of “buying the expectation, selling the fact”. Secondly, investors may focus on certain details in the earnings report or the management's statements about future outlook, which may imply a slowdown in growth or potential risks. Thirdly, the macro environment or overall industry sentiment may affect the performance of individual stocks, making it difficult to rise against the trend even with strong fundamentals.

Ark Invest's Contrarian Bottom-Fishing Logic

As CRCL stocks fell sharply, Cathie Wood's Ark Invest made a significant purchase, demonstrating its consistent contrarian investment style. On Wednesday, the ARK Innovation ETF (ARKK) purchased 245,830 shares of Circle stock, the ARK Next Generation Internet ETF (ARKW) also added 70,613 shares of Circle stock, and the ARK Fintech Innovation ETF (ARKF) similarly bought 36,885 shares of Circle stock. The three ETFs collectively bought shares worth $30.5 million, which is quite a considerable amount for a single day of trading.

Cathie Wood is known for her forward-looking investments in disruptive innovative technologies. Ark Invest, which she manages, has achieved great success with targets such as Bitcoin and Tesla, and of course, has also faced considerable controversy. This time, during the sharp fall of CRCL stocks, the large-scale buying indicates that Ark Invest believes the market reaction is excessive and that the stock price is already below its intrinsic value. From an investment logic perspective, Ark may value the following points:

Ark Invest's Core Reasons for Being Bullish on Circle

Stablecoin Market Leadership: USDC is the second largest stablecoin after USDT, with a solid and continuously growing market share.

Amazing Profitability: Net profit increased by 202% year-on-year, proving the sustainability of the business model and the scale effect.

Network Effect Enhancement: USDC circulation increased by 108% year-on-year, creating a positive cycle.

Strategic Infrastructure Layout: Circle Payments Network and Arc blockchain could become the next generation of financial infrastructure.

Analysts at William Blair Investment Banking stated in a stock research report released on Wednesday that they encourage investors to build a position as Circle's stock price fell by 12%. The analysts rated CRCL stock as “outperforming the market.” This endorsement from a professional institution provides additional support for Ark Invest's judgment. The analysts stated, “We believe that as Circle builds the critical network infrastructure Circle Payments Network and Arc, it has become a clear leader in a winner-takes-all market.”

Circle's Strategic Layout and Potential Catalysts

On Wednesday, Circle stated that as part of its expansion into on-chain programmable financial strategies, the company is “exploring” the possibility of issuing a native token for its Arc blockchain. Last month, the company launched the Arc public testnet for its Layer 1 stablecoin blockchain. This news has sparked extensive discussion among CRCL stock investors, as the issuance of a native token could open new value capture mechanisms for Circle.

The strategic significance of the Arc blockchain lies in its design as a Layer 1 blockchain specifically for stablecoins and tokenized assets. Unlike general-purpose blockchains, Arc is optimized for financial application scenarios, capable of providing higher performance, lower costs, and better compliance. If Arc can attract a large number of financial institutions and enterprises to build applications on it, Circle will transition from an infrastructure provider to a platform operator, and this role change will bring about a higher valuation premium.

The potential issuance of native tokens further adds imagination to the Arc ecosystem. Tokens can be used for various purposes such as network governance, transaction fee payment, and staking rewards, incentivizing early participants while creating new revenue sources for Circle. Referring to the valuation models of public chains like Ethereum and Solana, once Arc successfully establishes its ecosystem and issues tokens, Circle's overall valuation may see an order of magnitude increase.

Circle Payments Network is another key strategic asset. This payment network aims to connect traditional financial systems with the blockchain ecosystem, providing compliant on-chain payment solutions for enterprises. As more and more businesses seek blockchain technology to optimize cross-border payment and settlement processes, Circle Payments Network could become the infrastructure standard for this market. Analyst William Blair emphasizes that this is a “winner-takes-all market,” suggesting that Circle's first-mover advantage and network effects will create high barriers to entry.

Risk Factors and Investment Considerations

William Blair's analysts have also candidly outlined the major risks that CRCL stock investors must seriously assess. First is regulatory uncertainty, as the regulatory framework for stablecoins is still evolving globally, and any adverse regulatory policies could significantly impact Circle's business. Second is industry fragmentation and intensified competition; although USDC is currently the second in the market, giants like PayPal and Ripple are launching their own stablecoin products, which could alter the competitive landscape.

The third issue is the insufficient infrastructure for stablecoins, as the scalability, security, and interoperability of blockchain networks still face technical challenges. The fourth is corporate inertia, as traditional financial institutions often adopt new technologies slower than expected, which may pose obstacles for Circle's B2B business expansion. Finally, the pressure that may arise from declining interest rates, as part of Circle's revenue comes from interest income generated by holding USDC reserve assets; if interest rates continue to decline, this portion of revenue will be affected.

However, the joint judgment of Ark Invest and William Blair is that the risk-reward ratio of CRCL stock is favorable at current prices. Financial report data proves that Circle's business model is viable and is rapidly expanding, while the 12.2% drop in stock price provides a rare entry opportunity. For investors with a higher risk tolerance, this may be a reverse investment opportunity worth paying attention to.