Stablecoin issuer Circle (CRCL) surged in June, with its stock price nearing $300, solidifying its reputation as a high-priced crypto stock. However, as summer progressed, seasonal weakness eventually impacted the stock.

Despite a 7% rise last Friday following Jerome Powell’s rate-cut remarks, the stock has been declining over the past month and is now down nearly 60% from its all-time high.

Today, we explore the interest rate cut dilemma facing stablecoins and weigh the impact of monetary policy shifts on CRCL’s future.

The Interest Factor

Circle operates a bank-like business model: it profits from interest. Over $60 billion in bank deposits, overnight loan agreements, and short-term U.S. Treasuries back USDC. In Q2 2025, Circle earned $634 million in revenue from interest on these stablecoin reserves.

When rates rise, the portfolio earns more interest per dollar of USDC reserves; when rates fall, earnings shrink. While market forces drive rate movements, the cost of dollars is also influenced by Fed policy, especially for the short-term instruments Circle uses to manage reserves.

During his Jackson Hole speech last Friday, Fed Chair Jerome Powell strongly hinted at rate cuts. He attributed residual inflation to a one-time tariff spike, emphasized a slowing labor market, and defended potential cuts. Markets now expect the Fed to announce a cut at its September 17 policy meeting.

After Powell’s speech, the CME’s FedWatch and Polymarket saw sharp increases in rate-cut odds, but the key shift occurred on August 1. That day’s jobs report showed just 73,000 new jobs in July, with significant downward revisions to prior months.

Since August 1, FedWatch and Polymarket have consistently priced in a 25-basis-point (0.25%) cut. If the Fed cuts as expected, Circle’s income will drop overnight. According to its financial projections, every 100-basis-point (1%) drop in the federal funds rate would cost Circle $618 million in annual interest income—meaning a 25-basis-point cut (the standard increment) would reduce revenue by $155 million.

Fortunately, half these losses would be offset by lower distribution costs (per Circle’s agreement with Coinbase, which allocates ~50% of USDC reserve interest income to Coinbase). But the reality is that Circle’s operations grow tougher in a falling-rate environment.

Although Circle reported a Q2 net loss of $482 million (well below analyst expectations), the gap was largely due to a $424 million accounting charge from employee stock compensation during its IPO. Still, its finances reveal a company barely breaking even at current USDC supply levels—vulnerable to significant rate cuts.

The Solution

Rate cuts may reduce Circle’s per-dollar reserve earnings, but for CRCL shareholders, tweaking one variable could reverse the outcome. Powell and many financial commentators believe rates are already “restrictive,” and fine-tuning policy could address labor market softness without reigniting inflation.

If experts are right, cuts could spur economic recovery: employment stays high, credit costs fall, and crypto markets rally. In this scenario, demand for crypto-native stablecoins like USDC might rise, especially if they offer above-market DeFi yield opportunities.

To offset a 100-basis-point cut (the minimum in Circle’s sensitivity analysis), USDC circulation would need to grow ~25%, injecting $15.3 billion into the crypto economy.

Circle’s current P/E ratio of 192x (based on 2024 net income) reflects its high-growth potential. But if the Fed cuts rates in coming weeks, the stablecoin issuer must grow to survive. Assuming at least a 25-basis-point cut, Circle would need to increase USDC supply by ~$3.8 billion to maintain current profitability.

Circle has stated: “Any relationship between interest rates and USDC circulation is complex, highly uncertain, and unproven.” No model yet predicts how

USDC users will react to lower rates, but history shows that once started, rate-cut cycles often accelerate aggressively.

While economic booms might help Circle escape rate-driven deficits, mathematically, the company clashes with the dynamics of lower rates.