Circle Stock Jumps 50% as Short Squeeze Fuels Rally

TLDR

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Circle shares surged nearly 50% within two sessions after the company reported fourth quarter earnings.
Analysts said a short squeeze drove the rally rather than a change in the company’s fundamentals.
Hedge funds had built large bearish positions before the earnings release, which led to rapid short covering.
USDC circulation rose 72% year over year to $75.3 billion during the quarter.
Circle reported a net loss of $70 million for 2024 compared with a net profit in the prior year.

Circle shares surged nearly 50% within two sessions after the company released fourth quarter earnings on Wednesday. The rally followed an 80% decline from record highs reached last year and reversed recent losses. Analysts said short covering, rather than improved fundamentals, powered most of the advance.

Circle Earnings Trigger Short Squeeze

Circle reported strong growth in USDC circulation during the fourth quarter. The company said USDC supply reached $75.3 billion, up 72% year over year. However, analysts linked the sharp share price jump to hedge fund positioning.

Markus Thielen, founder of 10x Research, said positioning drove the move. He stated, “The magnitude of the move was not driven purely by the headline numbers.” He added, “The real catalyst was positioning,” and described the rally as a “high-probability short squeeze rather than a fundamental re-rating.” He estimated hedge funds lost about $500 million in one day on short positions.

Hedge funds had built large bearish bets before the earnings release. As the stock climbed, short sellers rushed to cover positions. Consequently, buying pressure accelerated and pushed shares sharply higher.

The surge broke a prolonged downtrend that had erased most of last year’s gains. Shares had fallen about 80% from prior record levels before the earnings report. The rapid rebound followed heavy trading volumes across sessions.

USDC Growth Contrasts with Profitability Decline

Circle’s flagship stablecoin, USDC, expanded in circulation during the quarter. The company reported $75.3 billion in USDC supply, which outpaced Tether’s USDT growth rate. Harvey Li, founder of Tokenization Insight, highlighted the supply increase in a research note.

Revenue from reserve income rose 58% to $2.64 billion. Circle earns reserve income mainly from U.S. government debt backing USDC. However, distribution costs climbed 66% to $1.66 billion during the same period.

Despite higher circulation, Circle posted a net loss of $70 million for 2024. The company had reported a $156 million net profit in 2023. Li said, “Stablecoin may be scaling; stablecoin issuance is a tough business.”

Japanese investment bank Mizuho raised its price target on Circle to $90 from $77. The bank cited stronger fourth-quarter results and growth linked to prediction markets. However, it kept a neutral rating and warned that lower rates could pressure reserve income.

Analysts Dan Dolev and Alexander Jenkins said revenue and profit exceeded expectations. Management pointed to prediction and betting platforms, including Polymarket, as drivers of USDC growth. Executives also described USDC as a potential default currency for AI agents in digital marketplaces.

Mizuho projected an average USDC circulation of about 123 million in 2027. The bank modeled reserve income near $3.7 billion and EBITDA of $916 million for that year. It applied a 24x EBITDA multiple and set a $90 price target.

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