Circle stock at risk as it faces a major triple whammy of headwinds

Circle Internet Group stock price has pulled back in the past few days, moving from a high of $138.5 in May to the current $79.72. This CRCL pullback may continue in the near future as it faces a triple-whammy of weak technicals, falling USDC supply, and US government yields. 

Circle stock price has formed a double-top pattern

Technicals suggest that the CRCL stock has retreated in the past few weeks, moving from a high of $138.50 in May to $79.7, its lowest level since March 2nd this year. That is a sign that it has moved to a technical bear market.

Most importantly, the stock has formed a double-top pattern whose height is $51 ($135 minus $84). Subtracting the height pattern’s height from the neckline of $79, gives it a target of $28. If this happens, the stock will have dropped by 90% from its all-time high. This view will be confirmed if it drops below the all-time low of $50.

Other technicals are bearish on the stock. For example, it remains below the 50-day Exponential Moving Average (EMA), while the Relative Strength Index (RSI) has fallen to 37. 

The stock is also slowly forming a bearish flag pattern, which is made up of a vertical line and a small horizontal channel. 

CRCL stock chart | Source: TradingView

USDC supply is falling

The other main risk that the company is facing is that USDC, its main asset, has dropped in the past few weeks. Data compiled by CoinMarketCap shows that the supply of the USDC token has dropped from $79.3 billion in March to $74 billion today. Artemis data places the number at $76 billion.

The falling USDC supply is notable because of Circle’s business model. Like other stablecoin issuers, the company makes its money by investing the funds in US government bonds. It is a model similar to how banks make money, with the only difference being that it is not allowed to invest in other assets like commercial bonds. 

This business model means that the company is not benefiting from the rising usage. Artemis data shows that the volume jumped by 15% in the last 30 days to over $2.6 trillion, while the number of active addresses rose to 16 million.

Falling US government bond yields

The ongoing USDC supply has also coincided with a continued decline in U.S. government bond yields, alongside a retreat in crude oil and natural gas prices. Data shows that the two-year yield has fallen from 4.20% earlier this month to 4.05%. The five-year yield has dropped to 4.155% from its year-to-date high of 4.35%. It has also formed a double-top pattern, suggesting further downside potential.

US bond yields have eased recently after the US inked a Memorandum of Understanding (MoU) with Iran. This MoU will lead to the reopening of the Strait of Hormuz, which explains why crude oil prices have pulled back in the past few days. As such, there is a possibility that the Fed will not have the urgency to hike interest rates.

As such, Circle Internet Group is facing the double-whammy of falling assets and interest rates, which will affect its revenue growth. 

The company is also facing another challenge: Arc. Arc, its layer-1 network, may face the challenges that have been faced by other chains like Ethereum, Solana, and BNB Chain. Most of these chains have seen a sharp retreat in its total value locked (TVL). As such, after raising $222 million from BlackRock and Apollo, there is a risk that the token will retreat after its debut.