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

Article Author: Thejaswini M A

Article Compiled by: 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 their business models are built on instability and factor that instability into their pricing.

Circle should not belong to this category. Its token value has always been pegged 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 44% lower than 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 this works, why it is more interesting than it seems, and what it tells us about the distinction between Circle's essence and the products the market is currently paying for.

What is Circle (of course, we will discuss 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 on these bonds belongs to Circle. This accounts for about 90% of the company's quarterly revenue. 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, which is 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 low in February.

Since February 28, the conflict in Iran has pushed oil prices up about 35%. Oil prices above $100 mean inflation concerns, and inflation concerns mean that any rate cuts by the Federal Reserve 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 Chicago Mercantile Exchange's (CME) FedWatch had shown a probability of over 90% for rates to remain unchanged. The war has truly impacted the market landscape for the entire year. Before the conflict, the market expected two rate cuts in 2026, each by 25 basis points. After the conflict broke out, the number of expected cuts dropped to one, not expected until after September. The probability of no rate cuts at all in 2026 has nearly doubled. With 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 higher stock prices. A war breaks out, and a stablecoin issuer benefits from it. This completely caught everyone off guard.

As background, the pessimistic expectation that led Circle's stock price to 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: based on the current USDC supply of $79 billion, each 25 basis point cut would reduce Circle's annual 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 no longer applied.

How the Squeeze Began

While the interest rate story kept the stock price high, the initial explosive rise came 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 had 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 for the quarter approached $12 trillion, 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 excellent, 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 with Circle 50/50. In 2024, this arrangement sent $908 million directly to Coinbase out of Circle's total distribution cost of $1.01 billion. For every dollar earned, Circle sees 54 cents flowing 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 affect Circle's profit margins. In the fourth quarter of 2025, distribution costs alone reached $461 million, a 52% year-over-year increase. The annual net loss of $70 million is partly due to a one-time equity incentive expense of $424 million post-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 just have different pricing methods. Currently, the market is paying for the best versions of both views simultaneously.

What Makes This More Than Just a Macro Trade?

The USDC supply recently reached $79 billion, a historic high, while the entire cryptocurrency market has dropped 44% from its peak in October. This divergence is worth our attention. Speculative assets typically fall when the market declines. The reason for USDC's continued growth 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. Although Tether's market cap remains as high as $184 billion, USDC's market cap is only $79 billion. From a total supply perspective, the gap between the two is vast. But now USDC's trading volume 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.

Stan 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, calling cryptocurrency "a solution in search of a problem." This authoritative 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 basis 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 (which currently holds 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 has 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 over $2 billion in assets), 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 across 50 countries, with an annual settlement volume of about $4.6 billion.

Circle is also building the infrastructure beneath all 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 the institutional layer. Its settlement infrastructure does not rely on Ethereum or Solana. While Ethereum and Solana currently lack the scale to impact revenue, they are both strategic investments for the future to address the potential for declining interest rates.

The AI layer, though smaller in amount, has significant structural implications. Circle's global marketing director reported in March 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 has a target price of $136, while Wall Street's most optimistic on Circle, Seaport Global, has set a target price of $280.

The Unshakeable Tension

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

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

Circle is well aware of this. It has been expanding its trading fees, enterprise services, payment networks, and Arc, among other businesses. These operations do not need to rely on the interest rate environment. But 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, with its influence unaffected by interest rate fluctuations. This argument is supported by data such as trading volume, institutional integration, Druckenmiller's commentary, and Macquarie's characterization of stablecoins as the foundational layer of global financial infrastructure. If this argument is correct, then Circle's valuation appears very low regardless of the interest rate environment, 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 not significantly cut rates anymore. 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 has made 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.

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