Circle’s latest earnings report offered a direct look at the issue now hanging over the company: its revenue base is still overwhelmingly tied to interest earned on USDC reserves. That concern has grown since OpenUSD entered the stablecoin race, and Morgan Stanley sharpened the pressure on Aug. 3 by cutting its price target on Circle to $38 from $106 and downgrading the stock from Neutral to Underweight.
A business model centered on reserve yield
At the center of the debate is a simple point. Most of Circle’s revenue still comes from interest generated by reserves backing USDC.
That leaves the model sensitive to two variables mentioned in the article. One is short-term U.S. dollar rates, since Federal Reserve rate cuts would directly reduce reserve yields. The other is USDC circulation, with channels such as Coinbase and Binance taking a growing share of distribution economics. Meanwhile, newer lines including payments, settlement and network services have yet to produce revenue at a scale large enough to change the picture. OpenUSD’s arrival has added to the pressure on the revenue side.
Q2 revenue missed expectations, and dependence increased
Circle reported Q2 revenue of $701.3 million, up 7% from a year earlier and 1% from the previous quarter. The figure was below the market expectation of $713 million.
The composition of that revenue stood out more than the headline number. Reserve income was $668 million, or about 95% of total revenue. In the prior quarter, that share was 94%, so the concentration increased rather than eased. Other revenue fell to $34 million from $42 million, and its share dropped from about 6% to less than 5%.
Profit measures looked somewhat better. Earnings per share came in at $0.18, ahead of the $0.16 market expectation. RLDC margin was 41.2%, staying at a high level and broadly in line with the previous quarter.
The article’s conclusion was blunt: the earnings report was ordinary at best, and it made Circle’s current challenge more visible. Revenue diversification did not improve. The business became even more dependent on interest income.
Coinbase renewal addressed one issue, not the core one
On the earnings call, Circle’s CEO pointed to one positive development: the company renewed its agreement with Coinbase on existing terms. That keeps USDC in a central position across Coinbase’s product lineup.
Still, the article argued that this response was limited. It helps preserve the existing base, but it does not answer the core concern. For Circle to change the market narrative, it needs to move from making money because users hold USDC to making money because USDC is being used.
Circle has continued to highlight payments networks, enterprise services, Arc and AI agent payments. For now, though, those businesses have not grown into a meaningful revenue contributor.
Long-term upside depends on a new revenue path
In the near term, the article said Circle stock lacks a clear driver for a move higher. Over a longer horizon, the same structural problem remains: profit generation is too concentrated. AI payments, as described in the piece, are not yet at scale, though the area may still be one Circle has to keep investing in over time.
The article also said Circle has already obtained a banking license, but the practical benefit at this stage is limited. It mainly allows self-custody and savings on custody fees. Even if Circle later offers custody for other institutions, the author wrote that it would not materially change the company’s earnings profile.
What Circle needs most, according to the article, is a way to raise USDC usage and build a path to charging transaction fees. Until that new narrative becomes real, the case for long-term investment remains one that requires patience.
The article’s closing note on risk management
The final section widened the discussion beyond Circle itself. It said the stock is an example of a broader group of assets with concentrated earnings structures, few short-term catalysts and long-term narratives that have not yet played out. In names like these, each rate decision, each earnings release and each piece of competitor news can trigger sharp price swings, with direction hard to predict in advance.
The article said retail investors often make two mistakes in this kind of setup: taking an oversized position on a single directional view, or refusing to cut risk after getting trapped. A more disciplined approach, it argued, is to define risk limits before entering a trade.
It then referenced BIT’s options-buying and margin financing features, saying they are designed for trading highly volatile assets. In the article’s description, buying options allows traders to take part in a rebound or a further decline with a relatively small upfront cost, while the maximum loss is fixed at the premium when the order is placed.
Disclaimer
The original article included a disclaimer stating that it was written by a specially invited analyst for BIT’s U.S. equities business. The views expressed were described as the author’s personal analysis and not the official views, investment advice or position of BIT or its affiliates. It also said the piece was for market information sharing and educational purposes only, and did not constitute investment advice, a research report or a recommendation to buy or sell securities. Securities, ETFs and digital assets mentioned in the article were presented only as case studies, not as a recommendation by BIT to buy, sell or hold them. The article added that investing involves risk, including price volatility and possible loss of principal, and said investors should make independent judgments based on their own risk tolerance and consult a professional financial adviser when necessary.