Circle IPO raises concerns over $5 billion valuation

Circle Internet Financial, the issuer of the USD Coin (CRYPTO:USDC) stablecoin, has filed for an initial public offering (IPO, ticker: CRCL) on the New York Stock Exchange.

While the company reported $1.67 billion in revenue for 2024, analysts have raised concerns about its declining profitability and high operating costs.

Matthew Sigel, Head of Digital Assets Research at VanEck, highlighted troubling financial metrics in Circle’s IPO filing.

Despite a 16% year-over-year revenue increase, EBITDA fell by 29%, and net income dropped by 42%.

Sigel attributed these declines to restructuring costs, legal settlements, and acquisition-related expenses.

Additionally, Circle discontinued services like Circle Yield, further reducing revenue streams.

A major point of concern is Circle’s distribution and transaction costs, which exceeded $1 billion in 2024—significantly higher as a percentage of revenue compared to competitors like Tether (CRYPTO:USDT).

These expenses stem from fees paid to partners such as Coinbase and Binance to maintain market share in the competitive stablecoin sector.

Circle’s historical performance has also fueled scepticism.

In 2022, the company recorded a $720 million loss amid crypto market turmoil following the collapse of FTX (CRYPTO:FTT) and Three Arrows Capital.

Analysts warn that Circle remains vulnerable to market shocks, raising questions about its risk management capabilities.

Omar, an independent analyst, criticised Circle’s $5 billion valuation, citing inefficiencies in operating costs.

He noted that Circle spends over $250 million annually on compensation and $140 million on administrative expenses.

“Nothing to love in the Circle IPO filing and no idea how it prices at $5 billion,” Omar remarked.

Interest rate trends pose additional challenges for Circle’s profitability.

As interest rates decline, income from stablecoin reserves—one of Circle’s core revenue drivers—may shrink.

Despite these concerns, some experts believe Circle could capitalise on the growing stablecoin market narrative.

However, others speculate that poor market conditions could lead to a buyout by Coinbase or Ripple (CRYPTO:XRP).