The reality and bubble behind the 100x PE carnival: Who is betting big on Circle’s future?

Jessy, Golden Finance

After Circle went public, its price-earnings ratio once soared to over 150 times.

Although Circle currently has a market value of 26 billion US dollars, according to the disclosure in the prospectus, its net profit in 2024 is only 156 million US dollars

Generally speaking, if a company belongs to a high-growth industry, it will have a higher price-earnings ratio. The high price-earnings ratio reflects that investors expect the company's future net profit to increase significantly. The surge in Circle's price-earnings ratio is precisely because investors have high expectations for Circle's future development.

The listing price has skyrocketed, and the price-earnings ratio is 100 times. Why are so many people buying Circle? Who is buying it?

Who is buying?

First, it is the traditional financial giants. BlackRock is the main manager of USDC reserve assets. According to the official website of Circle, the scale of Circle's reserve fund is 53.3 billion US dollars. This part of the funds is mainly managed by BlackRock, accounting for about 90% of its reserve scale. BlackRock not only deeply participates in the ecology of Circle, but also directly subscribes to about 10% of the shares in the IPO. In addition, according to the documents submitted by Circle to the US Securities and Exchange Commission, Blackstone Group also plans to obtain about 10% of the shares in the IPO.

According to Coindesk, on the first day of Circle's listing, Cathie Wood's ARK Invest also bought nearly 4.5 million shares.

The traditional financial giants represented by BlackRock may not be interested in Circle's short-term profits, but the potential of stablecoins as the core financial infrastructure of the future.

Before the IPO, many institutions had already become investors in Circle, such as Goldman Sachs, Accel, General Catalyst, IDG Capital, Baidu, Everbright Holdings, CICC, CreditEase, etc. These institutions began to bet on Circle as early as 2016.

It is precisely because these strategic investors have a strong resource network and market influence that these large institutional investors believe that Circle can use the power of these shareholders to obtain support in terms of funds, technology, market channels, etc., thereby enhancing its comprehensive strength and development prospects.

Of course, retail investors are also actively buying Circle. In China, discussions on platforms such as Douyin show that some investors regard Circle as a vane of "encryption compliance" and even compare it to traditional payment giants such as Visa. On its first day of listing, the trading volume reached 47.109 million shares, equivalent to approximately US$3.941 billion.

Why buy?

The surge in the price-to-earnings ratio means that investors are not paying for Circle's present, but are betting on Circle's future.

First of all, it is the scarcity premium of the compliance moat. Circle's investment in regulatory compliance is an advantage that is difficult for competitors to replicate. The GENIUS Act previously passed by the United States has established a detailed regulatory framework for stablecoin issuers. The provisions of this act are consistent with Circle's operating philosophy and practice, and also provide a more stable legal environment for Circle to carry out related businesses.

More expectations come from the future. Circle is the leader of compliant stablecoins. With the United States' continued bets on the crypto track, Circle may have great potential in RWA, DeFi and other fields.

And people's crazy buying is also related to changes in the macro environment. With people's bets on the US interest rate cut in September and the fading of tariff risks, high-risk assets are generally regaining market attention. Circle chose to go public when the market investment sentiment was high. At this time, the rebound in the price of cryptocurrencies such as Bitcoin also drove the market's attention and confidence in related industries, and the liquidity of US stocks was also recovering. At this time, investors had a strong demand for Circle's stocks, which pushed the stock price up rapidly.

However, the excessively high PE also shows potential risks, that is, "whether there is an excessively high bubble". The excessively high PE itself shows "excessive expectations and relatively low profits".

The risks still exist. First of all, Circle faces great competitive pressure. At present, USDT still occupies nearly 70% of the market share, and new players such as PayPal's PYUSD have entered the market strongly with a huge user base. Stricter supervision may also prompt large banks to issue stablecoins directly. It is not easy for Circle to dominate the track of compliant stablecoins.

But in terms of investment, Circle's current high PE phenomenon is also a high-risk performance. As an overvalued stock, any negative news, such as its slowing profit growth, regulatory factors, etc., may trigger investors to sell it. For retail investors, whether to buy at this time requires a reasonable assessment of risks.