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JPMorgan rates Circle underweight with $80 target by late 2026

JPMorgan Slaps Underweight Rating on Circle, Sets $80 Price Target for Late 2026 Amid Stablecoin Market Challenges

In a move that underscores the growing scrutiny on cryptocurrency firms transitioning to public markets, analysts at JPMorgan have initiated coverage on Circle Internet Financial, the issuer of the popular USDC stablecoin, with an "underweight" rating. The banking giant has set a conservative price target of $80 per share by the end of 2026, signaling potential headwinds for the company as it prepares for its highly anticipated initial public offering (IPO). This assessment comes at a pivotal time for Circle, which has positioned itself as a key player in the digital asset space, but faces intensifying competition, regulatory uncertainties, and questions about its long-term growth trajectory.

Circle, founded in 2013 by Jeremy Allaire and Sean Neville, has emerged as one of the most prominent entities in the stablecoin ecosystem. Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged to fiat currencies like the U.S. dollar, making them essential tools for trading, remittances, and decentralized finance (DeFi) applications. USDC, Circle's flagship product, is fully backed by cash and short-term U.S. Treasuries, distinguishing it from rivals like Tether's USDT, which has faced criticism over its reserve transparency. As of the latest data, USDC boasts a circulating supply exceeding $30 billion, making it the second-largest stablecoin behind USDT's dominance with over $100 billion in market cap.

The company's decision to go public marks a significant milestone in the maturation of the crypto industry. Circle confidentially filed for an IPO with the U.S. Securities and Exchange Commission (SEC) earlier this year, aiming to capitalize on renewed investor interest in digital assets following the approval of spot Bitcoin ETFs and a broader market recovery. This filing follows a previous attempt in 2022 to merge with a special purpose acquisition company (SPAC), which was abandoned amid market volatility and regulatory delays. By going public, Circle seeks to raise capital to expand its operations, enhance its technological infrastructure, and potentially diversify beyond stablecoins into areas like payments and blockchain services.

However, JPMorgan's analysts, led by a team specializing in fintech and digital assets, express caution in their inaugural report. The underweight rating implies that they believe Circle's stock will underperform relative to the broader market or its peers over the next 12 to 18 months. The $80 price target for late 2026 is notably conservative, especially when juxtaposed against Circle's pre-IPO valuation estimates, which have hovered around $5 billion to $9 billion based on private funding rounds. Analysts point to several factors contributing to this outlook, including eroding market share in the stablecoin sector, where USDC has lost ground to USDT despite Circle's emphasis on compliance and transparency.

One core concern highlighted in the report is the competitive landscape. Tether, Circle's primary rival, continues to dominate with faster growth in emerging markets and DeFi ecosystems, partly due to its less stringent regulatory approach. While Circle has benefited from partnerships with major financial institutions and its status as a regulated entity under U.S. laws, analysts argue that this compliance-heavy model could limit agility in a fast-evolving industry. For instance, Circle's reserves are audited monthly, providing reassurance to institutional investors, but this comes at the cost of higher operational expenses. JPMorgan estimates that Circle's revenue, primarily derived from interest income on its reserves and transaction fees, may face pressure if interest rates decline or if stablecoin adoption plateaus.

Regulatory risks also loom large in the analysts' assessment. The stablecoin market is under increasing global scrutiny, with frameworks like the European Union's Markets in Crypto-Assets (MiCA) regulation set to impose stricter requirements on issuers. In the U.S., ongoing debates in Congress about stablecoin legislation could either bolster Circle's position as a compliant leader or introduce new hurdles. JPMorgan notes that any adverse regulatory developments, such as restrictions on non-bank stablecoin issuers, could erode Circle's competitive edge. Furthermore, the broader crypto market's volatility—exemplified by Bitcoin's price swings and the fallout from events like the FTX collapse—adds an layer of uncertainty to Circle's prospects.

Delving deeper into the financials, JPMorgan's model projects Circle's earnings growth to be modest in the coming years. The firm anticipates that USDC's market capitalization could grow to $50 billion by 2026, driven by increased adoption in cross-border payments and tokenized assets. However, this growth is tempered by potential margin compression. Circle earns revenue by investing its dollar reserves in low-risk assets, pocketing the yield while maintaining the peg. With the Federal Reserve signaling potential rate cuts, this interest income stream—estimated at hundreds of millions annually—could diminish. Analysts also question the scalability of Circle's business model beyond USDC, pointing to initiatives like its programmable wallets and blockchain infrastructure as promising but unproven.

In contrast to the underweight rating, some market observers remain optimistic about Circle's IPO. Proponents argue that going public will provide Circle with greater access to capital markets, enabling it to invest in innovation and global expansion. For example, Circle has been actively partnering with entities like Grab in Southeast Asia for digital payments and with traditional banks for seamless fiat-to-crypto conversions. These efforts align with the growing trend of "real-world asset" tokenization, where stablecoins facilitate the digitization of traditional securities and commodities. Moreover, Circle's commitment to transparency, evidenced by its regular attestations from accounting firms like Grant Thornton, positions it favorably in an industry plagued by scandals.

Yet, JPMorgan's report tempers this enthusiasm by drawing parallels with other fintech IPOs that have struggled post-listing. Companies like Coinbase, which went public in 2021 amid crypto hype, have seen their stock prices fluctuate wildly in response to market cycles. Analysts suggest that Circle could face similar volatility, particularly if a crypto winter returns or if macroeconomic factors like inflation and geopolitical tensions disrupt digital asset flows. The $80 target implies a forward price-to-earnings multiple that is lower than industry averages, reflecting skepticism about Circle's ability to achieve outsized returns.

Looking ahead, the implications of this rating extend beyond Circle to the entire stablecoin ecosystem. As stablecoins become integral to global finance—handling trillions in annual transaction volume—they attract attention from central banks and regulators exploring central bank digital currencies (CBDCs). Circle's success or struggles could influence how these digital dollars evolve. For investors, the underweight call serves as a reminder of the risks inherent in crypto-related stocks, even those with seemingly stable business models.

In summary, while Circle stands at the forefront of bridging traditional finance and blockchain, JPMorgan's analysis paints a picture of a company navigating choppy waters. The $80 price target by late 2026 underscores the challenges of maintaining dominance in a competitive, regulated landscape. As Circle marches toward its IPO, stakeholders will be watching closely to see if it can defy the odds and deliver on its vision of a more inclusive financial system powered by stable digital assets. This development not only highlights the maturation of the crypto sector but also the cautious lens through which Wall Street views its integration into mainstream markets.

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Read the Full CoinTelegraph Article at:
[ https://cointelegraph.com/news/jpmorgan-circle-underweight-80-target-late-2026 ]