Circle Stock Analysis Ahead of Earnings as USDC Supply Falls

Key Insights

• Circle stock has formed a bearish flag pattern on the daily chart.
• The company will publish its earnings report this week.
• The USDC supply has continued falling this month.

Circle stock price has moved sideways since late June. It has remained inside the support and resistance levels of $58 and $73, respectively, in this period. This consolidation may be about to be tested on Wednesday when it publishes its financial results.

CRCL stock will be in the spotlight this week as the company publishes its financial results. These numbers come amid the ongoing crypto winter that has affected Bitcoin and most altcoins.

The results come at a time when the stablecoin industry has largely stalled. For example, while the USD Coin (USDC) supply has jumped from $64.5 billion on August 1 last year to the current $71.8 billion, the supply has been in free fall. It has dropped from a record high of nearly $80 billion to the current $71.8 billion, its lowest level since February this year.

The decline is a major issue for Circle because of how its business works. Circle operates as a bank, where it lets users buy the USDC coin, which they can redeem at any time.

The main difference is that banks can lend their cash to companies and individuals. On the other hand, Circle’s business is mandated by law to invest in short-term government bonds.

Circle’s business generates more revenue when the USDC supply is growing at a time when the short-term bond yields are rising. Data shows that these bond yields are rising, with the one-month notes yielding 3.6%. The ten-year yield has jumped to 4.68%.

The challenge now is that the USDC supply is no longer growing, which will affect its revenue and profits.

Yahoo Finance data shows that analysts expect the upcoming results to show that its revenue jumped by just 8.45% in the second quarter to $713 million. A 8.45% revenue growth is not all that enticing for a tech company in an industry that analysts expect to continue soaring.

Circle’s margins are also expected to remain under pressure as the company continues to spend. The earnings-per-share are expected to move to 16 cents.

Circle Internet Group stock is expected to be highly volatile this week. The options market indicates an implied volatility of 130%, much higher than the historical volatility of 91.7%.

Looking at the volume, the company has a put/call ratio of 0.54, with the puts and calls moving to 10,860 and 20,158. Based on open interest, the put/call ratio has moved to 0.93. These numbers mean that there are more puts than calls, a sign that investors anticipate the price to drop.

Analysts are also not all that optimistic about the company. For example, Mizuho’s analysts recently slashed their target from $50 to $45, implying a 30% downside from the current level. Robert Baird’s analysts reduced the target from $138 to $100, while Goldman Sachs slashed from $111 to $96.

The daily chart shows that the CRCL stock formed a double-top pattern at $136 and a neckline at $83, its lowest level in April. This pattern often leads to more downside over time.

The stock has remained below the 100-day Exponential Moving Average (EMA), a sign that bears are still in control. Most notably, the stock has formed a bearish flag pattern, which is made up of a vertical line and a horizontal channel.

Therefore, these patterns suggest the stock will likely continue to fall, potentially to the psychological level of $50. Such a move will be a 14% drop below the current level.

The post Circle Stock Analysis Ahead of Earnings This Week: Buy or Sell? appeared first on The Market Periodical.