The organizer of the IPO of issuer USDC Circle advised to sell its shares. Is the rally over?

JPMorgan, which underwrote the IPO of Circle, believes that the growth of its shares is out of control: they have risen in price five times since the placement on the stock exchange. The investment bank recommended selling Circle's securities, which is the issuer of the second most capitalized stablecoin, because many players are also going to issue similar tokens, and competition will not benefit it. Such a pessimistic forecast on the part of the listing organizer is rare: companies bringing an issuer to the exchange usually take a more favorable stance, notes Bloomberg.

JPMorgan analyst Kenneth Worthington believes that shares of Circle Internet Group, which issues USDC stablecoin, are overvalued and recommends selling them. Since the IPO earlier this month, the stock has appreciated more than 500%, and has lost 30% in the past five sessions.

Worthington set a $80 target price on Circle shares, implying a drop of nearly 60% from current levels. That's the lowest on Wall Street target for the company, notes Bloomberg.

«We view the competition as a potential threat to Circle,» the analyst wrote in a note cited by the agency. According to Worthington, the growing popularity of stablecoins will not benefit USDC.

On June 17, the U.S. Senate approved the GENIUS bill, which introduces regulation of the issuance of stablecoins and their asset backing. This caused shares of cryptocurrency companies to surge in the market, and including Circle's stock price soaring to $299 - with an IPO price of $31. In this wave, other companies planning to issue steiblcoins: Mastercard along with FIUSD steiblcoin issuer Fiserv - is going to issue cards linked to this token, Amazon and Walmart are thinking about launching their own projects in this area, according to media reports. And this is already causing concern among some analysts.

«We're seeing the launch of tokenized deposits, digital money market funds and the entry of a host of new players looking to occupy the digital dollar niche. The risk is that some players will be able to quickly capture a critical market share, using the infrastructure that Circle has built and taking advantage of the fact that it is easy for users to switch to alternative stablecoins,» explains the JPMorgan analyst.

Circle's market capitalization exceeded $40 billion, which is already more than half of the companies in the S&P 500 index. Such rapid growth has prompted some traders to bet on a fall: according to S&P Global, the share of short positions in the company's shares is steadily growing and already exceeds 25% of the total volume of freely traded shares,  writes Bloomberg.  

Circle's high valuation - over 120 on a P/E multiple (the ratio of share price to potential annual earnings) - has caused controversy among Wall Street analysts. According to Bloomberg, the stock has six buy recommendations and the same number of tips to keep it in the portfolio. Two other analysts have given a «sell» rating.

- Deutsche Bank initiated coverage of Circle on June 30 with a neutral rating. Analyst Brian Bedell cautioned investors against buying prematurely, expecting volatility. «While we see the potential of stablecoins as a long-term industry, the range of possible scenarios remains too wide, which will cause sharp swings in both earnings forecasts and quotes in the short to medium term,» he wrote.

- Optimistic Needham analysts compare Circle to Tesla and leaders in artificial intelligence, arguing that stablecoins mark a paradigm shift worthy of high praise.

- Barclays noted that Circle, as one of the few public companies in the sector, is already benefiting from capital inflows amid the advancement of the GENIUS bill. Analyst Ramsey El-Assal, who began coverage with a «buy» recommendation, believes investor interest will increase as positive news emerges. He also expects tokens such as Circle's USDC - pegged to the U.S. dollar and backed by reserves - to move beyond the crypto market and begin to penetrate traditional finance.

- Goldman Sachs calledCircle «a unique asset among public players» because it is «the only purely crypto-oriented company that has the potential to grow by tapping into large fiat markets - without the volatility inherent in cryptocurrency trading.» That said, the bank's analysts also believe the current valuation is overvalued they have assigned a neutral rating and a target price of $83, slightly higher than JPMorgan's.

Amid the excitement around stablecoins, which has sparked a surge in shares of companies related to this still-emerging technology around the world, institutional investors are becoming wary of them, Bloomberg notes. 

«It's reminiscent of the way retail investors indiscriminately bought up meta-universe-related stocks in 2020 and 2021. It's essentially a bet on public policy,» said SeokKeun Ha, chief investment officer at Eugene Asset Management in Seoul, told the agency;

This article was AI-translated and verified by a human editor