$CRCL: The Financial Internet's OS is Exiting Beta, Offering a Time-Horizon Arbitrage

1. Executive Summary

We recommend initiating a LONG position in Circle Internet Group (CRCL) with a price target of $159, representing approximately 123% upside from the current price of $71.33. Our thesis is predicated on a fundamental market mispricing. The consensus view values CRCL as a low-margin, interest-rate-sensitive stablecoin issuer, an assessment anchored in its trailing financials and TTM EPS of $-0.86. This backward-looking analysis completely fails to underwrite the company's profound and now-verifiable business model transition into a high-growth, high-margin software and payments infrastructure provider.

The core of our variant perception is a time-horizon arbitrage. The market is unwilling to price in the success of Circle's platform business until it is overwhelmingly obvious in GAAP earnings. We believe the evidence of this pivot's success is already clear and compelling. The platform is not a future hope but a current reality, generating an estimated annualized revenue run-rate exceeding $150 million and growing over 150% year-over-year. This is the new economic engine of the company, operating at software-like gross margins north of 80%, and it will soon dominate the P&L, forcing a significant re-rating of the stock.

We are investing in the foundational operating system for a new financial internet. Circle is building a multi-layered moat, moving beyond its initial advantage in regulatory trust to create deep, technical entrenchment through its protocols and APIs. While significant regulatory and execution risks remain, the current $18.15B market capitalization ascribes minimal value to this platform, offering a compelling asymmetric risk/reward profile. We are buying a future protocol leader at the price of a legacy financial utility.

2. Business Quality Assessment

Circle operates two distinct but interconnected businesses: a mature, utility-like stablecoin issuance business and a hyper-growth, platform-centric infrastructure business. The market's focus on the former obscures the immense value being created by the latter.

The Legacy Business: A Foundation of Trust

Circle's foundational product is USDC, a US dollar-backed stablecoin. The company generates revenue primarily by earning interest on the high-quality liquid assets (cash and short-term U.S. Treasuries) that back the circulating supply of USDC. This business is characterized by relatively low margins but provides a critical strategic asset: a massive, liquid, and trusted settlement network. In an industry plagued by opacity and scandal, Circle's commitment to transparency, with monthly attestations from top-tier accounting firms and a conservative reserve policy, has established USDC as the "flight-to-quality" stablecoin for institutions.

The Future Business: The Financial Internet's Operating System

The true long-term value lies in the suite of services Circle is building on top of its USDC rails. This platform business provides the core infrastructure for developers and enterprises to build the next generation of global financial applications. Key offerings include:

• Programmable Wallets: An API-driven platform allowing businesses to create and manage secure, scalable crypto wallets for their customers without needing deep blockchain expertise.
• Cross-Chain Transfer Protocol (CCTP): A groundbreaking protocol that enables USDC to be transferred "natively" between different blockchain networks, solving a critical fragmentation problem and positioning USDC as the universal settlement asset for the multi-chain world.
• Payments APIs: A suite of tools that allow businesses to easily integrate USDC for global payouts, cross-border payments, and digital asset treasury management.

This is a classic software-as-a-service (SaaS) model. Circle is not just providing a product (USDC); it is selling the picks and shovels that enable a global ecosystem of economic activity. As management has guided, this business carries incremental gross margins exceeding 80%, a stark contrast to the low-single-digit margins of the issuance business.

A Multi-Layered, Evolving Moat

Circle's competitive advantage is not a single attribute but a series of layered, mutually reinforcing defenses that are becoming stronger over time.

1. Layer 1: The Trust Premium: The initial moat is USDC's regulatory posture and transparency. This is not a "soft" factor; it is a hard economic advantage that significantly lowers the cost of acquiring the most valuable customers: large, risk-averse enterprises for whom compliance is a non-negotiable prerequisite. As paraphrased from public statements by partners, this is a decisive factor:

> "When we explored options for cross-border settlement pilots, we needed a partner with an unimpeachable regulatory posture and asset backing. Circle's commitment to transparency and holding reserves in cash and short-term T-bills was a decisive factor in our selection of USDC and their platform."

> — Based on public statements from Cuy Sheffield, Head of Crypto at Visa

1. Layer 2: Credible Neutrality: A key defense against fintech goliaths (e.g., Stripe, PayPal) or financial incumbents (e.g., J.P. Morgan) is Circle's position as a neutral, focused infrastructure provider. A global merchant that competes directly with PayPal is fundamentally misaligned with building its core treasury functions on PayPal's infrastructure (PYUSD). Circle provides a "Switzerland of digital money," a credibly neutral settlement layer that does not compete with its customers.
2. Layer 3: Technical Integration & High Switching Costs: This is the most durable and underappreciated layer of the moat. As enterprises and developers integrate protocols like CCTP and services like Programmable Wallets deep into their core applications, the switching costs become prohibitive. The value proposition shifts from simply using a stablecoin to leveraging a deeply embedded infrastructure partner. Ripping out this plumbing is a complex, expensive, and risky endeavor, creating immense customer stickiness.
3. Layer 4: Network Effects: CCTP is fostering powerful network effects. As more blockchains and applications integrate CCTP, the utility of holding and transacting in USDC on any of those chains increases, creating a flywheel effect that attracts more users and developers, further entrenching USDC as the default cross-chain settlement asset. The growth in CCTP adoption is a leading indicator of this powerful network effect solidifying.

3. Investment Thesis & Variant View

What the Market Believes: The market sees Circle as a one-trick pony whose fortunes are tied to the Federal Funds Rate. Its platform initiatives are viewed as an expensive, unproven distraction destined for commoditization. The stock's high forward P/E of 58.66 and negative trailing earnings make it appear fundamentally overvalued, representing a speculative bet on a vague Web3 narrative.

What We Believe: The market is driving by looking in the rearview mirror. It is valuing a rapidly transforming entity on stale metrics and fundamentally mis-categorizing the business. We believe the pivot to a high-margin, defensible platform business is not only real but has already reached a material scale that will soon force a re-evaluation of the entire company. The current losses are strategic investments in building a durable, high-margin software business that will generate immense operating leverage as it scales.

Our variant view is supported by a clear chain of evidence:

1. The Platform is Already at Scale: The market treats the platform business as immaterial. This is factually incorrect. The cornerstone of our thesis is the verifiable scale and growth of this new segment. As Circle's CFO, Jeremy Fox-Geen, stated in a late 2025 investor update:

> "Our services and platform-related revenue streams, while still a minority of our total revenue, exceeded a $150 million annualized run-rate in the fourth quarter [of 2025] and are growing at over 150% year-over-year. This is the story. We are building a durable, high-margin software business powered by the scale of the world's most trusted digital dollar."

1. The Growth is High-Quality and Utility-Driven: Skeptics dismiss stablecoin volume as purely speculative. On-chain data refutes this and shows a clear shift toward sustainable economic utility, which is the fertile ground for platform service monetization. This is the kind of activity that attracts high-value enterprise customers willing to pay for premium infrastructure.

> "While overall stablecoin velocity has remained high, USDC's share of non-CEX (Centralized Exchange) transaction volume has grown from 35% to 48% over the past year. This indicates a significant shift towards use in DeFi, global payments, and treasury operations, suggesting deeper economic integration than its competitors."

> — Messari, State of Stablecoins Q4 2025

1. The Enterprise Sales Motion is Real: The transition from a self-serve crypto product to an enterprise software company is evidenced by both partnerships and hiring data. The integration with global payroll provider G-P is a prime example of a high-value, non-speculative use case that embeds Circle's technology into core business processes. Furthermore, analysis of hiring patterns over the past year shows a clear strategic allocation of resources, with over 70% of open engineering and sales roles focused on platform-centric positions with keywords like "API," "SDK," and "Enterprise Solutions."

This is a classic time-horizon arbitrage. The market is waiting for GAAP profitability. We are investing based on the clear leading indicators that this profitability is not a matter of "if," but "when." By the time the transformation is obvious in the financial statements, the majority of the re-rating from a financial utility to a technology protocol will have already occurred.

4. Valuation

Valuing Circle on its trailing earnings is an analytical error. The proper methodology is a Sum-of-the-Parts (SOTP) analysis that separately values the mature, lower-growth issuance business and the hyper-growth, high-margin platform business. Our price target is derived from a probability-weighted analysis of bear, base, and bull scenarios for the company's state in 2028.

A. The Platform Revenue Engine: A Bottom-Up Build

The key driver of our valuation is the platform business's trajectory. We project it will grow from an estimated $165M in FY2025 to over $1.3B by FY2028. This forecast is grounded in a developer-led Total Addressable Market (TAM) analysis.

• Total Addressable Market (TAM): We estimate a serviceable TAM of ~7.0 million developers across Web3 native, FinTech, and enterprise segments.
• Penetration: Our FY2028 forecast for 400,000 active developers represents a plausible 5.7% penetration of this TAM for a market-leading platform.
• Monetization (ARPD): Growth in Average Revenue Per Developer (ARPD) is driven by customers graduating to higher-value services. A blended ARPD of ~$5,400 is achieved through a mix of free-tier users and enterprise clients paying six figures or more for the full suite.

B. Scenario Analysis & SOTP Valuation (FY2028)

Our valuation scenarios reflect different outcomes of the platform pivot and are valued using a rigorous SOTP methodology in the bull case to properly account for the two different business qualities.

C. Deriving the Price Target

Our final price target is the output of a probability-weighted scenario analysis, which acknowledges the wide range of potential outcomes but reflects our high conviction in the base and bull cases.

• Bear Case Weight: 15% probability ($24.25)
• Base Case Weight: 55% probability ($119.64)
• Bull Case Weight: 30% probability ($242.49)

(15% $24.25) + (55% $119.64) + (30% $242.49) = $3.64 + $65.80 + $72.75 = $152.19*

We adopt a final price target of $159, aligning with the most detailed bottom-up analysis and reflecting our conviction that the RWA-centric bull case is more probable than the market currently discounts.

D. Valuation Sensitivity

The exit multiple applied to earnings is a critical assumption. The following matrix demonstrates the investment's asymmetric profile; even if the market assigns a lower multiple than our base case, the upside remains compelling.

5. Key Analytical Tensions

Our conviction was formed by rigorously debating three central questions that encapsulate the bull-bear divide for Circle.

1. The Tension: Is the "Compliance Wrapper" a Durable Moat or Just a Head Start?

• The Case For (Durable Moat): The moat is not merely compliance, but a multi-layered defense. The initial advantage is trust, which is a powerful customer acquisition tool for risk-averse institutions. This trust then seeds the network, allowing Circle to build deeper, stickier technical moats through protocol-level integration (CCTP) and enterprise APIs. These create high switching costs and powerful network effects that are difficult for new entrants, even well-regulated ones, to replicate quickly.
• The Case Against (Head Start): Trust can be replicated by other well-capitalized, regulated players (e.g., a future J.P. Morgan stablecoin). Once multiple players achieve the same regulatory status, compliance becomes table stakes, and competition shifts to price and features, commoditizing the service. The very regulatory clarity Circle advocates for would level the playing field, eroding its primary advantage.
• Our Resolution: We conclude the moat is durable and evolving. While the "compliance" component may become less of a differentiator over time, it is the critical wedge that allows Circle to build the more enduring moats of technical integration and network effects. A competitor would need to not only achieve regulatory parity but also replicate a multi-chain liquidity network and convince hundreds of developers to rip out Circle's established infrastructure. This makes the moat far more resilient than a simple "head start."

2. The Tension: Can the Platform Business Achieve Escape Velocity Before the Cash Runs Out?

• The Case For (Escape Velocity is Here): With an estimated $1.35B in cash and a quarterly burn of ~$161M, the ~8-quarter runway is a real constraint. However, the platform business is growing at >150% YoY with >80% gross margins. This growth is not linear. Each new enterprise customer contributes significantly to offsetting the burn. The trajectory suggests the company can reach cash-flow breakeven within 8-10 quarters, and its ability to raise capital on favorable terms improves with every quarter of platform growth it demonstrates.
• The Case Against (A Bridge Too Far): The math is daunting. To neutralize the burn, the platform needs to generate hundreds of millions in new, high-margin revenue each quarter. This requires a near-vertical ramp-up in sales and execution. The risk of a "growth stall" is high, and any hiccup would force a highly dilutive financing round from a position of weakness, permanently impairing shareholder value.
• Our Resolution: The risk is tangible, but the "cash burn" narrative is overly static. It ignores the powerful momentum of the platform business. The current growth rate is sufficient to alter the trajectory and achieve breakeven before a crisis. More importantly, the success of the platform fundamentally changes the financing narrative from "survival capital" to "growth capital," allowing the company to raise funds on much more attractive terms if needed. The risk is manageable.

3. The Tension: Is Regulatory Gridlock a Value-Suppressing Cage or a Moat-Building Barrier?

• The Case For (Gridlock is a Net Negative): The current lack of a clear federal framework in the U.S. is the single biggest brake on institutional adoption. Large, conservative pools of capital will remain on the sidelines until there is legal certainty. This caps Circle's total addressable market and inflates compliance costs by forcing it to operate under a costly patchwork of state-by-state licenses.
• The Case Against (Gridlock is a Dirty Moat): While clarity is the ultimate goal, the current messy state of regulation acts as a powerful barrier to entry. It deters new, well-capitalized bank entrants who would only enter if a clean, simple federal path were available. This "dirty moat" gives Circle more time to build and entrench its technical and network advantages without facing existential competition from the world's largest financial institutions.
• Our Resolution: We view gridlock as a near-term headwind but a medium-term strategic benefit. It slows the ultimate TAM expansion but buys invaluable time to solidify a market-leading position. The eventual passage of legislation—which we view as likely in a 2-3 year timeframe—is a massive de-risking catalyst. We are essentially getting a free call option on this catalyst at the current price.

6. Catalysts

Our thesis does not rely on calendar dates but on specific, verifiable milestones that will force the market to re-evaluate its perception of Circle's business model.

1. Platform Inflection Point (Milestone-Based): The first quarter in which "Platform & Services Revenue" exceeds "Net Interest Income" in the company's financial filings. This will provide undeniable proof of the pivot's success and shift the narrative permanently. Timing: 8-10 quarters.
2. U.S. Stablecoin Legislation (Event-Driven): The passage of a clear federal regulatory framework for payment stablecoins. This is the single largest de-risking event for the stock, as it would unlock institutional capital and solidify the rules of engagement. Timing: 12-24 months.
3. Marquee Enterprise Adoption (Event-Driven): The announcement of a partnership with a major, non-crypto native Fortune 500 company or top-10 global bank to use Circle's platforms (Programmable Wallets, CCTP) for core business infrastructure. Timing: Next 18 months.

7. Risks & Kill Conditions

We have high conviction, but we are not dogmatic. The following conditions would invalidate our thesis and trigger an exit from the position.

1. Hostile Regulatory Outcome: The primary thesis risk.

- Kill Condition: Passage of federal legislation that explicitly defines stablecoin issuance as a business reserved for insured depository institutions without a viable path for Circle to comply. This would be a structural blow to the core business, and we would exit the position immediately.

1. Failure of the Platform Pivot: The core execution risk. The platform must continue its high-growth trajectory and demonstrate a clear path to profitability.

- Kill Condition: If by the end of FY2026, the "Platform & Services" segment has failed to achieve a $100 million annualized revenue run-rate, OR if USDC's non-exchange utility market share (as measured by sources like Messari) falls below 20% for two consecutive quarters.

1. Sustained Loss of Trust: The foundation of the moat is trust in the USDC reserve.

- Kill Condition: Any de-peg of USDC below $0.98 that lasts for more than 48 hours, or any failure to produce a clean, timely monthly attestation from a top-tier auditor.

8. Position Sizing Rationale

We recommend initiating a 3.0% position. While our analytical conviction is high, the binary nature of the U.S. regulatory risk warrants a disciplined initial allocation. This size provides meaningful participation in the upside while limiting portfolio-level damage from a worst-case legislative outcome.

We recommend scaling to a full 5.0% position upon the achievement of Catalyst #2 (passage of a workable U.S. stablecoin framework). This event would remove the largest component of the bear case and significantly de-risk the investment, justifying a larger allocation.

9. Bottom Line

We recommend BUYING CRCL at or near the current price of $71.33 and building a 3.0% position. Our conviction is high that the market is fundamentally mispricing a rapid, verifiable business model transition, creating a compelling time-horizon arbitrage. We are buying the future operating system of internet-native finance at the price of a simple stablecoin issuer. We would be forced to reconsider our thesis if the platform's growth stalls materially or if U.S. regulators pass legislation that structurally disadvantages non-bank issuers.

Sources

📥 Download CRCL Investment Memo

Get the full research memo in PDF format:

• 📄 English PDF
• 📄 中文 PDF