Cryptocurrency stocks have been slammed since the $6.3 billion hack of top exchange Binance, which fueled longstanding worries about the safety and security of Bitcoin and other crypto investments.
Now, stablecoin issuer Circle Internet Group has a chance to stabilize the digital currency sector when it reports third-quarter earnings Wednesday before the opening bell. Investors will be looking for information on how the company is dealing with competitors, and how AI will affect Circle's business.
Shares of Circle have tumbled nearly 8% in the past five trading days, erasing the stock's gain for the year in the process.
Even before the Binance hack, it had been a tumultuous time for crypto stocks in general.
Bitcoin prices have been volatile, in part due to worries about regulation. The Senate failed to advance a vote on the Clarity Act, a bill that would have provided more federal guidelines on rules for the crypto industry.
There are now concerns that if Democrats win control of both the House and Senate in the midterm elections, there could be calls for stricter regulations on digital assets, including stablecoins. Those cries could become louder in the wake of the big Binance hacking incident.
Circle is likely to discuss these issues when the company reports results Wednesday afternoon. The company, which is the issuer of USDC, a cryptocurrency pegged to the U.S. dollar, is expected to report earnings per share of 38 cents, a 40% drop from a year ago. Analysts are forecasting that revenue in the quarter will rise 7% to $784 million.
Investors will also be keeping a close eye on whether increased competition from Tether, the issuer of the USDT stablecoin and OUSD, a newer open standard stablecoin backed by Bridge, a subsidiary of fintech Stripe, is hurting Circle.
Mike Colonnese, an analyst with H.C. Wainright, argued in a report that competitive fears are overdone. He added that the launch of Circle's new blockchain network, Arc, in September is "one of the most important near-term catalysts" for the company, mainly because it will help Circle diversify from being mainly a stablecoin issuer that makes money off interest income on its reserves into a leading provider of crypto infrastructure for larger institutional firms.
BlackRock, Visa, Mastercard and New York Stock Exchange owner Intercontinental Exchange are all Arc partners for example.
"Arc is purpose-built for financial markets," Colonnese wrote.
Another positive sign for Circle? The stock rallied about 5% Tuesday after Cathie Wood's ARK Invest disclosed that it recently bought about $2.6 million's worth of Circle stock for its ARK Innovation, ARK Next Generation Internet and ARK Fintech Innovation ETFs, adding to its existing positions in Circle. Those same ARK funds also boosted their stakes in top crypto brokerage firm Coinbase, whose stock has fallen after reporting mixed results in late October.
Still, Wall Street is fiercely divided on what's next for Circle. Half of the 36 analysts who cover the stock recommend it as a Buy, including Colonnese. He has a $104 price target on the stock, nearly 40% higher than its current price. But 14 analysts rate Circle a Hold while four have a Sell on it.
Dan Dolev, an analyst with Mizuho, is one of the bears. His $43 price target is nearly 45% below the current price. His take? New personal AI agents like Meta's Muse could be bad news for Circle. He ran a simulation using Muse that showed the agent suggesting other places for investors to park their money instead of USDC.
"We believe AI personal assistant engines pose a marked risk to Circle's medium-term revenue," he wrote. "Agents like Muse are likely to recommend steering away from USDC, with a strong preference for high-yielding FDIC-insured alternatives."
Circle's executives will need to address the concerns about Binance, competition and the threat from AI on its earnings call with analysts in order to get the stock back on track.
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