The war not only drives up oil prices but also causes Circle's stock price to soar

Article Author: Thejaswini M A

Article Compilation: Block unicorn

Introduction

There is a type of company that profits when global situations worsen. Defense contractors, oil giants, gold mining companies. These are obvious examples, as these companies' business models are built on instability and factor that instability into their pricing.

Circle should not belong to this category. Its token value is always fixed at $1, by design. Stability is at the core of its product. However, Circle's stock price has skyrocketed from $49.90 on February 5 to about $123 today, more than doubling in just five weeks. Meanwhile, the entire cryptocurrency market is still down 44% from its peak in October.

As the world becomes increasingly turbulent, a company designed to maintain price stability has become one of the hottest trading targets in the market.

I want to explain how it works, why it is more interesting than it seems, and what it tells us about the difference between the essence of Circle and the products the market is currently paying for.

What is Circle (of course, we will talk about this later)

Setting aside branding, payment concepts, and infrastructure development, the essence of Circle is that it holds U.S. Treasury bonds. Every dollar of USDC in circulation is backed by a dollar of short-term government bonds. The interest from these bonds belongs to Circle. This accounts for about 90% of the company's revenue each quarter. Its business model is not complicated: Circle is a money market fund that issues stablecoins.

This means that Circle's revenue has only one key factor: the federal funds rate. When interest rates are high, Treasury yields are high, and Circle earns more for each USDC it issues. When rates are low, revenue decreases. Everything else is secondary.

Here is a series of events that led to the stock price rebounding 150% from its February low.

Since February 28, the conflict in Iran has driven oil prices up about 35%. Oil prices exceeding $100 mean inflation concerns, and inflation concerns mean that if the Federal Reserve were to cut rates, it would be seen as reckless. The decision to maintain interest rates on March 18 was actually not surprising. Even before the war broke out, the CME's FedWatch had shown a probability of over 90% for rates to remain unchanged. The war has truly impacted the market landscape for the year. Before the conflict, the market expected two rate cuts in 2026, each by 25 basis points. After the conflict broke out, the expected number of cuts was reduced to one, not expected until after September. The probability of no rate cuts in 2026 nearly doubled. With interest rates expected to remain high for an extended period, Circle's Treasury reserve yields continue to rise. Higher yields mean more revenue. More revenue means a higher stock price. A war breaks out, and a stablecoin issuer benefits from it. This completely caught everyone off guard.

As background, the pessimistic expectation that Circle's stock price would drop to $49 in February was essentially a bet on rate cuts. The market expected the Federal Reserve to cut rates multiple times in 2026, which would directly compress Circle's reserve income. A rough estimate: with the current USDC supply of $79 billion, each 25 basis point cut would reduce Circle's annualized income by $40 million to $60 million. Two cuts would reduce its income by nearly $100 million by the end of the year. However, the war changed this expectation overnight. This was not because Circle itself changed, but because the macroeconomic backdrop that was originally thought to weaken this argument was no longer applicable.

How the Squeeze Began

While the interest rate story kept the stock price high, the initial explosive rise stemmed from position building.

Before the fourth-quarter earnings report was released on February 25, about 17.8% of Circle's outstanding shares were shorted. Hedge funds built up significant short positions. Their logic was that interest rates would eventually fall, reserve income would decrease, and the company had no minimum income guarantee that did not rely on interest rates. From a fundamental perspective, this argument seemed reasonable. Then, Circle reported earnings per share of $0.43, exceeding the market's expectation of $0.16. Revenue was $770 million, higher than the expected $749 million. On-chain USDC trading volume approached $12 trillion in the quarter, a year-over-year increase of 247%. Short sellers covered their positions. The stock price soared 35% in a single trading day. According to 10x Research, hedge funds lost about $500 million in a single day due to their short positions. Subsequently, this short war intensified, continuing the positive momentum from the earnings report.

The Coinbase Issue

Here is the part that did not enter the rising narrative.

Circle is projected to have a net loss of $70 million in 2025, rather than being profitable. The fourth-quarter performance was outstanding, but the annual performance was poor. To understand the reasons behind this, you need to understand the Coinbase protocol, which is the most important yet easily overlooked key in Circle's business.

When USDC was initially launched in 2018, Circle and Coinbase formed a joint alliance to manage it. This alliance was dissolved in 2023, and Circle gained full control over USDC issuance. However, Coinbase retained a portion of the revenue share.

Coinbase takes 100% of the reserve income from USDC held on its platform and splits everything else 50/50 with Circle. In 2024, this arrangement directly sent $908 million of Circle's total distribution cost of $1.01 billion to Coinbase. For every dollar earned, Circle sends 54 cents to a company that does not issue tokens or handle reserves. By early 2025, Coinbase's share of the total USDC supply reached 22%, up from 5% in 2022. The more USDC grows on the Coinbase platform, the more revenue Circle earns.

The protocol automatically renews every three years, and Circle cannot unilaterally exit. The outcome of the next renegotiation will directly impact Circle's profit margins. In the fourth quarter of 2025, distribution costs alone will reach $461 million, a year-over-year increase of 52%. The annual net loss of $70 million is partly due to a one-time equity incentive expense of $424 million after the IPO, which makes the accounting loss appear worse than the actual business situation. However, Circle's core business still faces structural cost issues that no interest rate environment can completely resolve.

The market is pricing Circle as an infrastructure. The income statement shows it is an interest rate trading company, but with high distribution costs. Both views can coexist; they are just priced differently. Currently, the market is paying for the best versions of both views simultaneously.

What Makes This More Than Just a Macro Trade?

The supply of USDC recently reached $79 billion, a record high, while the entire cryptocurrency market has fallen 44% from its peak in October. This divergence is worth our attention. Speculative assets typically decline when the market falls. The reason for the continued growth of USDC is that people are using it to transfer funds rather than holding it as a speculative tool. During the Iran conflict, demand for USDC surged in the Middle East precisely because the traditional banking system became unreliable. When normal payment channels are disrupted, people use USDC for remittances and cross-border transfers. This is how payment infrastructure performs under pressure: usage increases, not decreases.

Trading data also supports this. In February alone, the adjusted trading volume of USDC reached about $1.26 trillion, while the trading volume of USDT during the same period was $514 billion. Despite Tether's market cap still being as high as $184 billion, while USDC's market cap is only $79 billion. From the total supply perspective, the gap is vast. But now the trading volume of USDC has surpassed that of USDT.

Dormant supply and active settlement are two different concepts. The former refers to where people store their funds, while the latter refers to the funds people use when they need to transfer value.

Druckenmiller made a rather insightful point this week. In a Morgan Stanley interview recorded on January 30 and released earlier, he stated that he expects the global payment system to operate on stablecoins in the next 10 to 15 years, describing cryptocurrency as "a solution in search of a problem." This leading macro investor sharply divides the cryptocurrency space: stablecoins are an inevitable infrastructure, while everything else is still searching for a reason to exist. This rhetoric is the theoretical foundation for being bullish on cryptocurrency.

Infrastructure Bet

Tokenized assets have grown from about $1.5 billion at the beginning of 2023 to about $26.5 billion today. Many of these products, including BlackRock's tokenized Treasury fund BUIDL (currently holding over $2 billion in assets), rely on USDC for subscription, redemption, and settlement processing. The prediction market is expected to handle over $22 billion in trading volume in 2025, primarily settled in USDC. Just Polymarket alone achieved this. Visa now supports over 130 stablecoin-linked cards across 50 countries, with an annual settlement volume of about $4.6 billion.

The scale of tokenized assets has grown from about $1.5 billion at the beginning of 2023 to about $26.5 billion today. Many such products, including BlackRock's tokenized Treasury fund BUIDL (currently with assets exceeding $2 billion), rely on USDC for subscription, redemption, and settlement. The prediction market is expected to exceed $22 billion in trading volume in 2025, most of which will be settled in USDC. Just Polymarket alone has achieved this. Visa currently supports over 130 stablecoin-linked cards in 50 countries, with an annual settlement volume of about $4.6 billion.

Circle is also building the infrastructure beneath all of this. The Circle payment network connects 55 financial institutions, with an annual transaction volume of $5.7 billion, enabling banks and payment service providers to transfer USDC across borders and directly convert it into local currency. Circle's own Layer-1 blockchain, Arc, is designed to fully support institutional layers. Its settlement infrastructure does not rely on Ethereum or Solana. While Ethereum and Solana currently do not scale enough to impact revenue, they are both strategic investments for the future to address the potential for falling interest rates.

The AI layer, while smaller in amount, is structurally significant. Circle's global marketing director released data in March showing that AI agents completed 140 million payments totaling $43 million over the past nine months. Of these, 98.6% of transactions were settled in USDC, with an average transaction amount of $0.31. Currently, over 400,000 AI agents have purchasing power. Although the amount is still small, the direction of development is noteworthy. If AI agents need to make payments to each other at extremely high frequencies and very low amounts (below $0.25) for computation, data access, and API call fees, they will need a payment method that can settle instantly and at zero cost. Circle has launched Nanopayments for this purpose. Nanopayments offer USDC transfers with no gas fees as low as $0.000001, with transactions packaged off-chain and settled in batches. The testnet currently supports 12 blockchains, including Arbitrum, Base, and Ethereum.

This is why the market is currently paying $123 per share for Circle. The company is at the core of tokenized finance, AI agent commerce, cross-border payments, and prediction markets, benefiting from regulatory tailwinds from the GENIUS Act and the CLARITY Act, which may pass before summer. Bernstein has set a target price of $190, Clear Street's target price is $136, while Wall Street's most bullish on Circle, Seaport Global, has set a target price of $280.

The Unshakeable Tension

Here, I want to candidly discuss a point that bullish perspectives often overlook.

Circle's profitability relies on a high-interest-rate environment. But this is not a long-term strategy. The Federal Reserve will eventually cut rates. When that happens, the Treasury yields supporting USDC will decline, and Circle's interest income will also decrease.

Circle is well aware of this. It has been expanding its transaction fees, enterprise services, payment networks, and Arc, among other businesses. These operations do not need to rely on the interest rate environment. However, currently, these revenues are minimal. Reserve income remains key.

So you have these two scenarios sitting on the same stock price, but they are not the same investment.

The infrastructure argument posits that USDC is becoming a true payment pipeline. It is regulated, transparent, and increasingly integrated into the traditional financial system, its influence unaffected by interest rate fluctuations. This argument is supported by data such as trading volume, institutional integration, Druckenmiller's discourse, and Macquarie's characterization of stablecoins as the foundational layer of global financial infrastructure. If this argument is correct, then regardless of the interest rate environment, Circle's valuation appears very low, as its potential market covers the entire global payment system.

The interest rate trading argument posits that Circle is a company betting on long-term rising interest rates, and its stock price has already reflected expectations that the Federal Reserve will no longer cut rates significantly. If this argument drives the stock price, then every basis point of eventual rate cuts by the Federal Reserve will constitute resistance, and the current stock price has already exceeded the level supported by fundamentals under normal interest rates.

Both views are reflected in the price. The war makes it difficult for the market to determine which side it leans toward.

Currently, the most important thing to understand about CRCL may not be whether it can rise to $190, but whether you are investing in infrastructure or investing in a more self-promoting alternative to Treasury yields. The former is suitable for long-term holding, while the latter will become ineffective the moment Jerome Powell changes his mind.

At present, this war allows both to survive. Oil prices play a key role, and the true value of this company lies in the blank space between these two scenarios: it has found a way to create dollar-denominated internet currency, but now must consider how to survive when dollar yields no longer reach 5%.