American financial services company Compass Point, which is primarily known for specializing in equity research, has downgraded USDC issuer Circle to a Sell rating.
This comes after the GENIUS Act, the groundbreaking stablecoin legislation that provides much-needed clarity for the sector, was recently signed into law in the U.S.
Compass Point expects the Circle (CLRC) stock to plunge to just $130 (a whopping 37% reduction).
The shares of the leading stablecoin issuer are currently down by nearly 9% following the massive downgrade.
According to Compass Point, Circle's current valuation cannot be justified by its revenue model and competitive positioning.
The downgrade that comes hot on the heels of the hugely important stablecoin bill seems to be counterintuitive, given that the much-touted legislation is expected to give the stablecoin sector a substantial boost.
Ironically, some analysts view the passage of the GENIUS Act as bad news for the company since it will lead to more market saturation. Circle's USDC already has to compete with Ripple's RLUSD and some other upstarts.
However, the bill is expected to create even more competition, given that it clears the way for major banking institutions to finally enter the stablecoin space under federal regulation. Such major players with massive user bases and significantly lower customer acquisition costs could potentially emerge as dominant new players within the space.
On top of that, the bill will also increase compliance costs for Circle.
Even though Circle is now pursuing a national trust bank license, Ripple is also making similar moves.
Vladislav Sopov
U.Today Editorial Team