Not only does war drive up oil prices, but why did Circle's stock price soar to new heights?

Article author: Thejaswini M A

Article translated by: Block unicorn

Introduction

There’s a kind of company that tends to profit when the global situation worsens. Defense contractors, oil majors, and gold mining companies. These are obvious examples: their business models are built on instability, and they price that instability into their costs.

Circle never should have fit into this category. Its token value is designed to stay fixed at $1. Stability is the core of its product. However, Circle’s stock price has surged from $49.90 on February 5 to about $123 today—more than double in just five weeks. Meanwhile, the entire crypto market is still 44% below its October peak.

With the world becoming increasingly turbulent, a company designed to keep prices stable has become the most traded object in the market.

I want to explain how it works, why it’s more interesting than it looks, and what it tells us about Circle’s nature—and how that differs from the product the market is currently paying to buy.

What is Circle (and yes, we’ll get to this later)

Strip away branding, the payment narrative, and the infrastructure-building angle, and you’ll find that Circle’s essence is this: it holds U.S. Treasury bonds. Every $1 of USDC in circulation is backed by $1 in short-term government securities. The interest on these bonds belongs to Circle. That makes up roughly 90% of the company’s quarterly revenue. The business model isn’t really complicated: Circle is a money market fund that issues stablecoins.

This means Circle’s revenue hinges on one key factor: the federal funds rate. When rates are high, Treasury yields are high, and Circle earns more per USDC issued. When rates are low, revenue drops. Everything else is secondary.

Below is a chain of events that drove the stock price to rebound by 150% from its February low.

Since the February 28 Iranian conflict, oil prices have risen by about 35%. Oil above $100 raises inflation concerns, and inflation concerns mean that any rate cuts by the Fed would be seen as reckless. Keeping rates unchanged on March 18 was, in practice, no surprise. Even before the war began, the CME FedWatch already showed that the probability of holding rates steady was over 90%. What the conflict really affects is the market’s full-year positioning. Before the outbreak, the market expected two rate cuts in 2026, with 25 basis points each. After the outbreak, the number of cuts dropped to one, at the earliest sometime after September. The probability of zero rate cuts in 2026 nearly doubled. With interest rates likely to stay high for the long term, Circle’s Treasury reserve yield has continued to rise. Higher yields mean more revenue. More revenue means a higher stock price. War breaks out, and a stablecoin issuer benefits. That was completely unexpected by everyone.

As context, the February pessimistic view that pushed Circle’s share price down to $49 was essentially a bet on rate cuts. The market expected the Fed to cut rates multiple times in 2026, which would directly compress Circle’s reserve income. Rough estimate: based on the current USDC supply of $79 billion, each 25 bps cut would reduce Circle’s annualized revenue by about $40 million to $60 million. Two cuts would reduce income by nearly $100 million by year-end. But the war changed that expectation overnight. It wasn’t because Circle itself changed—it was because the macro environment that was supposed to weaken this thesis no longer applied.

How the squeeze started

Even though the rate story kept the stock price elevated, the initial burst of upside came from positioning.

Before Circle released its Q4 earnings on February 25, about 17.8% of its outstanding shares were shorted. Hedge funds built large short positions. Their logic was that rates would eventually fall, reserve income would decline, and the company had no minimum income floor that didn’t depend on rates. From a fundamentals perspective, that argument seemed plausible. Then Circle reported earnings per share of $0.43, above the widely expected $0.16. Revenue came in at $770 million, above expectations of $749 million. On-chain USDC trading volume in the quarter approached $1.2 trillion, up 247% year over year. Shorts covered. The stock price surged by 35% in a single trading day. According to 10x Research, hedge funds lost roughly $500 million in one day due to their short positions. After that, the short war only intensified, extending the bullish tailwinds from the earnings.

The Coinbase problem

Here’s the part that didn’t make it into the upside narrative.

Circle had a net loss of $70 million in 2025, not a profit. Q4 was strong, but the full year was weak. To understand why, you need to know about the Coinbase agreement—the most important but also easiest-to-miss piece in Circle’s business.

When USDC was initially launched in 2018, Circle and Coinbase formed a joint consortium to manage it. That consortium was dissolved in 2023, and Circle gained full control of USDC issuance. However, Coinbase retained a share of the revenue split.

Coinbase takes 100% of the reserve revenue from USDC held on its platform, and splits everything else 50/50 with Circle. In 2024, this arrangement sent $908 million of the company’s total $1.01 billion distribution costs directly to Coinbase. For roughly every $1 earned, $0.54 flows to a company that neither issues tokens nor handles reserves. By early 2025, Coinbase’s share of total USDC supply reached 22%, up from just 5% in 2022. The more USDC grows on Coinbase’s platform, the more Circle’s revenue grows.

The agreement automatically renews every three years, and Circle can’t exit unilaterally. The outcome of the next renegotiation will directly affect Circle’s profit margins. In Q4 2025, distribution costs alone totaled $461 million, up 52% year over year. The reason for the $70 million full-year net loss is that after an IPO, Circle incurred a one-time equity incentive expense of $424 million, which made the accounting loss look worse than the underlying business reality. But Circle’s core business still faces a structural cost problem, one that no interest-rate environment can fully fix.

The market is pricing Circle as infrastructure. But the income statement shows that it’s an interest-rate trading company—with high distribution costs. Both views can be true at the same time; they just reflect different ways of valuing the business. Right now, the market is buying the best version of both views simultaneously.

What makes this more than a macro trade?

USDC supply recently hit $79 billion, an all-time high, while the overall crypto market is down 44% from its October peak. This divergence is worth paying attention to. Speculative assets tend to fall when markets drop. The reason USDC keeps growing is that people use it to move funds—not to hold it as a speculative instrument. During the Iranian conflict, demand for USDC surged in the Middle East because traditional banking systems became unreliable. When normal payment rails fail, people use USDC for remittances and cross-border transfers. That’s what payment infrastructure looks like under stress: usage increases rather than decreases.

Trading data also confirms this. In February alone, USDC’s adjusted trading volume reached about $1.26 trillion, while USDT’s trading volume in the same period was $51.4 billion. Even though Tether’s market cap is still as high as $184 billion and USDC’s market cap is only $79 billion. In terms of total supply, the gap is enormous. But now USDC’s trading volume exceeds USDT’s.

Dormant supply and active settlement are two different concepts. The former refers to where people store funds; the latter refers to the funds people use when they need to transfer value.

Druckenmiller made a particularly insightful point this week. In an interview with Morgan Stanley recorded on January 30 and released earlier, he said he expects global payment systems to run on stablecoins over the next 10 to 15 years, calling crypto “a solution searching for a problem.” This leading macro investor splits the crypto space in a sharp, clear way: stablecoins are an inevitable piece of infrastructure, while everything else is still looking for a reason to exist. This argument is exactly the theoretical foundation of the bullish case for crypto.

The infrastructure bet

Tokenized assets have grown from roughly $1.5 billion at the start of 2023 to roughly $26.5 billion today. Many products—including BlackRock’s tokenized Treasury fund BUIDL (currently holding more than $200 million in assets)—depend on USDC for subscription, redemptions, and settlement processing. The forecast market trading volume processed in 2025 exceeds $22 billion, largely settled in USDC. Only Polymarket. Visa now supports more than 130 stablecoin-linked cards across over 50 countries, with annualized settlement volume of roughly $4.6 billion.

Tokenized assets have grown from roughly $1.5 billion at the start of 2023 to roughly $26.5 billion today. Many products like BlackRock’s tokenized Treasury fund BUIDL (currently with assets over $200 million) depend on USDC for subscriptions, redemptions, and settlement. The forecast market trading volume in 2025 exceeds $22 billion, most of which is settled in USDC. Only Polymarket has achieved this. Visa currently supports more than 130 stablecoin-linked cards across 50 countries, with annualized settlement volume of roughly $4.6 billion.

Circle is also building the infrastructure underneath all of this. Circle’s payment network connects 55 financial institutions, with annual transaction volume of $5.7 billion—allowing banks and payment providers to transfer USDC across borders and exchange it directly into local currency. Circle’s own Layer-1 blockchain Arc is designed to fully support institutional layers. Its settlement infrastructure doesn’t rely on Ethereum or Solana. While Ethereum and Solana aren’t large enough today to impact revenue meaningfully, they are strategic long-term investments to prepare for the possibility of future rate cuts.

Even though the AI layer is smaller in dollar terms, its structure is quite meaningful. Data released in March by Circle’s global head of marketing shows that over the past nine months, AI agents completed 140 million payments totaling $43 million. Of those, 98.6% of transactions are settled in USDC, and the average transaction value is $0.31. There are already more than 400,000 AI agents with purchasing power. Even if the amounts are still small, the direction is not something to ignore. If AI agents need to pay each other at extremely high frequency and extremely low amounts (below $0.25) for computation, data access, and API calls, then they need a payment method that can settle instantly and at zero cost. Circle built Nanopayments for exactly this. Nanopayments provides zero-gas-fee USDC transfers as low as $0.000001, with transactions batched off-chain and settled in batches. The testnet currently supports 12 blockchains, including Arbitrum, Base, and Ethereum.

This is what justifies the market pricing Circle at $123 per share today. The company sits at the core of tokenized finance, AI agent commerce, cross-border payments, and prediction markets—and benefits from regulatory tailwinds from the GENIUS Act as well as the CLARITY Act that may be passed before summer. Bernstein’s price target is $190, Clear Street’s target is $136, and Seaport Global—the most bullish Wall Street firm on Circle—has a target of $280.

The tension that won’t go away

Here, I want to be candid about something that the bullish view often overlooks.

Circle’s profitability depends on a high-rate environment. But that’s not a permanent plan. The Fed will eventually cut rates. At that time, the Treasury yields backing USDC will fall, and Circle’s interest income will decline as well.

Circle knows this. It has been expanding into things like transaction fees, enterprise services, the payments network, and Arc. Those businesses don’t require a high-rate environment to work. But today those revenues are still tiny. Reserve income is still the key.

So you have two scenarios sharing the same stock price, but they’re not the same investment.

The infrastructure thesis argues that USDC is becoming a real payments pipeline. It’s regulated, transparent, and increasingly integrated into the traditional financial system, and its impact isn’t driven by interest-rate fluctuations. This thesis is supported by data—trading volume, institutional adoption, Druckenmiller’s remarks, and even McKinsey referring to stablecoins as the foundational layer of global financial infrastructure. If this argument is correct, then Circle’s valuation looks cheap regardless of the interest-rate environment, because its addressable market effectively covers the entire global payments system.

The rate-trading thesis argues that Circle is a company betting that rates stay high for a long time, and its stock price already reflects expectations that the Fed will not cut rates meaningfully anymore. If this is what drives the stock price, then every 1% the Fed eventually cuts will be a headwind—and the stock is already trading above what fundamentals would normally support under normal rate levels.

Both views are already reflected in the price. War makes it hard for the market to figure out which side it should lean toward.

Right now, the most important thing to understand about CRCL may not be whether it can rise to $190, but rather what you’re actually investing in: infrastructure, or a Treasury-yield substitute that’s better at self-promotion. The former is suited for long-term holding; the latter will fail instantly the moment Jerome Powell changes his mind.

For now, the war is allowing both to limp along. Oil prices are playing a key role, and the company’s real value is buried somewhere in the gap between these two scenarios: it has already found how to create an internet currency denominated in dollars—but now it has to figure out how it survives when dollar yields are no longer reaching 5%.