Circle stock price has plunged in the past two months, erasing most of the gains made after its initial public offering (IPO). CRLC dropped to $114.55 last week, its lowest level since June 16. This decline has led to a $44 billion wipeout as the market capitalization dropped to $26 billion from a high of $70 billion.
Top reasons why CRCL stock plunged
The Circle stock price has plunged primarily for five main reasons. First, it has plunged as the initial post-listing momentum waned, with some of the initial investors like Cathie Wood dumping millions of shares. This is a common practice whenever a stock or a crypto goes public.
Second, the CRCL stock price has declined due to valuation concerns. At its peak, it was one of the most overvalued companies, as its market capitalization jumped to over $70 billion, significantly exceeding the value of its stablecoin holdings.
Third, Circle’s share price has plunged as competition in the stablecoin industry rose. While USDC is the second biggest stablecoin in the crypto industry, other new ones are gaining market share.
Ripple USD (RLUSD), which was launched in December last year, has become the fastest-growing stablecoin in the crypto industry as its market capitalization jumped from zero to $710 million today. PayPal’s PYUSD stablecoin has a market cap of over $1.1 billion.
Federal Reserve interest rate cut hopes
Further, the stock has retreated as concerns about the Federal Reserve remained. Recent data confirmed that the Fed will cut interest rates by 0.25% or even 0.50% this month.
The data showed that the economy created just 22,000 jobs in August as the unemployment rate rose to 4.3%. Most importantly, the report confirmed that the economy lost jobs in June for the first time since the pandemic.
Fed interest rate cuts may impact its revenue growth because it makes money by investing its reserves in short-term government bonds.
On the positive side, the company will offset the rate cuts by growing the USDC market cap. This is happening as the amount has jumped to over $72 billion, up from $35 billion in the same period last year. This growth may continue after the signing of the GENIUS Act.
Circle stock has fallen as the countdown to its lockup period expiry started. This expiry will end in December, allowing its insiders to sell the stock. As we saw with the CoreWeave stock, many shares drop towards the lockup expiry.
Circle reported mixed financial results. While its revenue jumped by 53% to $658 million, its net loss rose to $482 million. Non-cash charges like stock-based compensation and an increase in the fair value of the convertible debt drove this loss.
Analysts expect that its revenue in the current quarter to be $679 million, while the annual figure will jump to $2.61 billion. It will then jump to $3.21 billion in the next financial year.
Circle stock price technical analysis
CRCL stock chart | Source: TradingView
The three-hour chart shows that the CRCL stock price has been in a freefall in the past few months, moving from a high of $298 in July to $115 today.
On the positive side, it has formed a falling wedge pattern, which is made up of two descending and converging trendlines. These two trendlines are now about to converge, which may lead to a bullish breakout.
The MACD and the Relative Strength Index (RSI) have started to move upwards. Therefore, the stock will likely have a strong bullish breakout, potentially to $150 in the coming months as investors buy the dip.
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