Does the war not only drive up oil prices but also send Circle's stock price soaring?

Ask AI · How War Is Reshaping Our Understanding of Circle’s Business Model?

Article Author: Thejaswini M A

Article Compilation: Block uni****corn**

Introduction

There’s a class of companies that profit when the world’s situation deteriorates. Defense contractors, oil majors, gold mining companies. These are obvious examples. These companies’ business models are built on instability, and they bake that instability into their pricing.

Circle was not supposed to belong to this category. Its token value has always been fixed at 1 US dollar—by design. Stability is at the core of its product. Yet Circle’s stock price has surged from 49.90 US dollars on February 5 to around 123 US dollars today—more than doubling in just five weeks. Meanwhile, the entire crypto market is still 44% below its October peak.

As global conditions grow increasingly turbulent, a company whose product is designed to keep prices stable has become the hottest trading target in the market.

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

What is Circle (and yes, we’ll get to that later)

Strip away branding, the idea of payments, and infrastructure building, and you’ll find that the essence of Circle is this: it holds U.S. Treasuries. Every circulating dollar of USDC is backed by a one-dollar short-term government bond. The interest from these bonds belongs to Circle. That’s roughly 90% of the company’s quarterly revenue. Its business model isn’t actually complicated: Circle is a money market fund that issues stablecoins.

That means Circle’s revenue hinges on one key factor: the federal funds rate. When rates are high, Treasury yields are high, and for every USDC it issues, Circle earns more. When rates are low, revenue falls. Everything else is secondary.

Below is a series of events that drove the stock to rebound by 150% from its February low.

Since February 28, the Iran conflict has pushed oil prices up by about 35%. Oil above 100 US dollars implies inflation concerns, and inflation concerns mean that if the Fed cuts rates, it will be seen as reckless. Keeping rates unchanged on March 18 was essentially a foregone conclusion. Even before the war broke out, the Chicago Mercantile Exchange (CME) FedWatch had already shown a probability above 90% that rates would stay unchanged. What the war truly affected was the market’s positioning for the entire year. Before the conflict, the market expected two rate cuts in 2026, each time by 25 basis points. After the conflict, the number of cuts dropped to one, and the earliest would be after September. The probability of no rate cuts at all in 2026 nearly doubled. As rates are set to remain high for the long term, Circle’s Treasury reserve yield keeps rising. Higher yields mean more income. More income means a higher stock price. War breaks out, and a stablecoin issuer benefits. That’s completely out of everyone’s expectations.

As background, the bearish expectations that drove Circle’s stock price down to 49 US dollars in February were essentially bets on rate cuts. The market expected the Fed to cut rates multiple times in 2026, which would directly compress Circle’s reserve earnings. Rough estimate: based on the current USDC supply of 79 billion US dollars, each 25 basis point cut would reduce Circle’s annualized revenue by between 40 million and 60 million US dollars. Two cuts would cut its revenue by nearly 100 million US dollars by year-end. But the war changed this expectation overnight. This wasn’t because Circle itself changed—rather, the macro backdrop that was thought to weaken the argument no longer applied.

How the squeeze began

Even though the rates story kept the stock propped up at elevated levels, the initial surge came from positioning.

Before Circle reported its Q4 earnings on February 25, about 17.8% of its float was shorted. Hedge funds built large short positions. Their logic was that rates would eventually fall, reserve income would decline, and the company has no minimum revenue floor that doesn’t depend on interest rates. From a fundamentals perspective, that sounded plausible. Then Circle reported earnings per share of 0.43 US dollars, above the market’s widely held expectation of 0.16 US dollars. Revenue was 770 million US dollars, above the forecast of 749 million US dollars. On-chain USDC trading volume in the quarter was close to 1.2 trillion US dollars, up 247% year over year. Shorts covered. The stock price jumped 35% in a single trading day. According to 10x Research, hedge funds lost about 500 million US dollars on their short positions within one day. Then this short war intensified further, continuing the tailwind from the earnings report.

Coinbase’s issue

The following is the part that didn’t make it into the up-move narrative.

Circle’s net revenue in 2025 was a loss of 70 million US dollars, not a profit. Q4 performance was strong, but the full-year results were weak. To understand why, you need to know about the Coinbase protocol—the most important yet most easily overlooked piece of the puzzle in Circle’s business.

When USDC was initially launched in 2018, Circle and Coinbase formed a joint consortium to manage it. The consortium dissolved in 2023, and Circle took full control of USDC issuance. However, Coinbase kept a portion of the revenue share.

Coinbase takes 100% of the reserve income from USDC held on its platform, and splits everything else with Circle on a 50/50 basis. In 2024, this arrangement sent 908 million US dollars out of Circle’s total distribution costs of 1.01 billion US dollars directly to Coinbase. For every dollar earned, 54 cents flows to a company that doesn’t issue tokens and doesn’t handle reserves. By early 2025, Coinbase’s share of total USDC supply held had risen to 22%, up from 5% in 2022. The more USDC grows on the Coinbase platform, the more Circle earns.

The protocol automatically renews every three years, so Circle can’t exit unilaterally. The outcome of the next renegotiation will directly affect Circle’s profit margins. In Q4 2025, distribution costs alone totaled 461 million US dollars, up 52% year over year. The reason for the full-year net loss of 70 million US dollars was that, after the IPO, it incurred a one-time equity incentive expense of 424 million US dollars, making the book loss worse than the underlying operational reality. But Circle’s core business still faces structural cost issues, and no interest-rate environment can completely solve them.

The market is pricing Circle like infrastructure. But the income statement shows it’s an interest-rate trading company with high distribution costs. Both views can be correct; they just differ in how the pricing is framed. Right now, the market is buying the best versions of both narratives at the same time.

What makes this more than just a macro trade?

USDC supply has recently reached 79 billion US dollars, a historical high, while the entire crypto market is down 44% from its October peak. That divergence deserves attention. Speculative assets usually fall when markets decline. The reason USDC keeps growing is that people use it to move funds—not to hold it as a speculative instrument. During the Iran conflict, demand for USDC surged in the Middle East, precisely because traditional banking systems became unreliable. When normal payment rails break down, people use USDC for remittances and cross-border transfers. That’s what payment infrastructure looks like under stress: usage rises, not falls.

Trading data backs this up as well. Just in February, USDC adjusted trading volume reached about 1.26 trillion US dollars, while USDT’s trading volume in the same period was 514 billion US dollars. Even though Tether’s market cap is still 184 billion US dollars and USDC’s is only 79 billion US dollars—based on total supply, the gap is huge. But now USDC’s trading volume exceeds USDT’s.

Dormant supply and active settlement are two different concepts. The former refers to where people park their funds; the latter refers to the funds people use when they need to move value.

Druckenmiller made a particularly insightful point this week. In a Morgan Stanley interview recorded on January 30 and released earlier, he said he expects that over the next 10 to 15 years, the global payments system will run on stablecoins, and he called crypto “a solution looking for a problem.” This leading macro investor neatly split the crypto space into two: stablecoins are unavoidable infrastructure, and everything else is still searching for a reason to exist. That line of thinking is the theoretical foundation of the bullish crypto case.

The infrastructure bet

Tokenized assets have grown from roughly 1.5 billion US dollars at the start of 2023 to about 26.5 billion US dollars today. Many products—including BlackRock’s tokenized Treasury fund BUIDL (currently holding more than 200 million US dollars in assets)—rely on USDC for subscription, redemption, and settlement. The forecast for trading volume processed in 2025 exceeds 22 billion US dollars, mostly settled in USDC. Only Polymarket does this. Visa now supports more than 130 stablecoin-linked cards across over 50 countries, with an annualized settlement volume of about 4.6 billion US dollars.

Tokenized assets have grown from roughly 1.5 billion US dollars at the start of 2023 to about 26.5 billion US dollars today. Many such products—including BlackRock’s tokenized Treasury fund BUIDL (currently holding more than 200 million US dollars in assets)—rely on USDC for subscription, redemption, and settlement. The forecast for trading volume in 2025 exceeds 22 billion US dollars, most of which is settled in USDC. Only Polymarket reaches this target. Visa currently supports more than 130 stablecoin-linked cards in 50 countries, with an annualized settlement volume of about 4.6 billion US dollars.

Circle is also building the infrastructure beneath all of this. Circle’s payment network connects 55 financial institutions, with annual transaction volume of 5.7 billion US dollars, enabling banks and payment service providers to transfer USDC cross-border and exchange it directly into local currency. Circle’s own Layer-1 blockchain Arc is designed to fully support the institutional layer. Its settlement infrastructure doesn’t rely on Ethereum or Solana. While Ethereum and Solana are not yet large enough to materially affect revenue, they are still strategic, future-facing investments in case rates decline.

The AI layer may involve smaller amounts, but its structure is meaningful. Data released in March by Circle’s global head of marketing shows that over the past nine months, AI agents completed 140 million payments totaling 43 million US dollars. Of these, 98.6% of transactions were settled in USDC, with an average transaction value of 0.31 US dollars. There are already more than 400,000 AI agents with purchasing power. Even though the amounts are still small, the direction is not something to ignore. If AI agents need to pay each other at extremely high frequency for extremely low amounts (under 0.25 US dollars)—for computation, data access, and API call fees—then they need a payment method that can settle instantly and at zero cost. Circle launched Nanopayments for exactly this purpose. Nanopayments enables gas-free USDC transfers as low as 0.000001 US dollars, packs transactions off-chain, and settles in batches. The testnet currently supports 12 blockchains, including Arbitrum, Base, and Ethereum.

This is what it means that the market is currently pricing Circle at 123 US dollars per share. This company sits at the core of tokenized finance, AI agent commerce, cross-border payments, and prediction markets—and benefits from the regulatory tailwinds of the GENIUS Act as well as the CLARITY Act that may pass before summer. The target price from Bernstein is 190 US dollars, Clear Street’s target price is 136 US dollars, and Seaport Global—the Street’s most bullish on Circle—sets a target price of 280 US dollars.

The lingering tension

Here, I want to be candid about one thing that bullish views often overlook.

Circle’s profitability depends on a high interest-rate environment. But that won’t last. The Fed will eventually cut rates. Then the Treasury yield backing USDC will fall, and Circle’s interest income will decline accordingly.

Circle knows this. It has been expanding into trading fees, enterprise services, the payments network, and Arc. These businesses don’t require an interest-rate environment to function. But for now, these revenues are still tiny. Reserve income remains the key.

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

The infrastructure thesis says USDC is becoming a real payment pipeline. It is regulated, transparent, and increasingly integrated into the traditional financial system. Its impact isn’t affected by interest-rate fluctuations. Data supports this view—for example, trading volume, institutional integration, Druckenmiller’s comments, and the fact that Mizuho calls stablecoins the foundational layer of global financial infrastructure. If this thesis is correct, then regardless of the interest-rate environment, Circle’s valuation looks low, because its addressable market covers the entire global payments system.

The interest-rate trading thesis says Circle is a company betting that rates will stay high for the long run, and its stock price already reflects expectations that the Fed will no longer cut rates significantly. If this is what drives the stock price, then every percentage point of eventual Fed cuts will become headwind, and the stock’s current price is already above what the fundamental backdrop under normal interest rates would support.

Both theses are already reflected in the price. War makes it hard for the market to tell which side it should lean toward.

Right now, the most important thing to understand about CRCL may not be whether it can rise to 190 US dollars—it’s whether you’re investing in infrastructure or in a Treasury-yield substitute that’s better at marketing itself. The former is suitable for long-term holding, while the latter would fail immediately the moment Jerome Powell changes his mind.

For now, this war is keeping both alive. Oil played a key role, and the company’s true value is embedded in a gap between these two scenarios: it has already found a way to create a dollar-denominated internet money, but now it has to figure out how it will survive when dollar yields no longer reach 5%.

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