Circle logo is seen in this illustration taken March 31, 2023. REUTERS/Dado Ruvic/Illustration
(Reuters) -Circle's third-quarter profit beat Wall Street expectations on Wednesday, driven by higher reserve income amid rising circulation of its flagship stablecoin, but shares fell on concerns over potential competition and valuation.
Global adoption of stablecoins — digital tokens backed by low-risk assets such as the U.S. dollar or Treasuries — is gaining momentum as traditional financial firms roll out new offerings in the space and regulators worldwide move toward clearer rules.
The Trump administration, which has pledged to position the U.S. as a global leader in cryptocurrency, enacted the Genius Act earlier this year, establishing a legal framework for regulating dollar-backed stablecoins aimed at enhancing the safety of digital payments.
"This isn't just crypto speculation anymore, this is the plumbing of digital finance getting laid brick by brick," said David Bartosiak, stock strategist at Zacks Investment Research.
Circulation of USDC more than doubled from a year earlier to $73.7 billion in the third quarter. Circle, the issuer of USDC, earns reserve income from investing the fiat reserves that back its stablecoin.
The company posted adjusted earnings of 36 cents per share, beating analysts' estimates of 22 cents, according to data compiled by LSEG. Total revenue, including reserve income, jumped 66% to $739.8 million.
In recent months, Circle has struck partnerships with traditional financial institutions and rolled out several initiatives to boost USDC circulation.
The company's shares fell 10% on Wednesday. The stock has more than tripled over its IPO price since its listing in June, despite recent weakness.
U.S. Tiger Securities analyst Bo Pei attributed the stock decline to Circle's revised annual gross margin outlook of 38%, which implied a weaker fourth quarter.
"It (stock move) could be due to the still elevated expectation for the growth of USDC reflected in valuation, as well as the potential launch of Arc native token which could impact the adoption of USDC," Owen Lau, managing director at Clear Street, told Reuters.
(Reporting by Arasu Kannagi Basil and Pritam Biswas in Bengaluru; Editing by Krishna Chandra Eluri)
