Does the war not only drive up oil prices but also send Circle's stock price soaring?

Author: Thejaswini M A

Compiled by: Block unicorn

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Introduction

There’s a type of company that actually profits when the global situation deteriorates. Defense contractors, oil giants, gold mining companies. These are obvious examples—business models built on instability, with that instability priced into their costs.

Circle shouldn’t belong to this category. Its token value has been fixed at $1 by design. Stability is at the core of its product. Yet Circle’s stock price surged from $49.90 on February 5 to roughly $123 today—more than doubled in just five weeks. At the same time, the entire crypto market is still 44% below its October peak.

With the global situation growing increasingly volatile, a company designed to keep prices stable has become the hottest trading target in the market.

I want to explain how it works, why it’s more interesting than it looks, and what it tells us about the difference between Circle’s essence and the product the market is currently willing to pay for.

What is Circle (of course, we’ll get into that later)

Strip away the branding, the payments concept, and the infrastructure buildout, and you’ll find that Circle’s essence is this: it holds U.S. Treasury bonds. Every USDC dollar in circulation is backed by one dollar of short-term government securities. The interest from these bonds goes to Circle. That’s roughly 90% of the company’s revenue each quarter. Its business model is actually not complicated: Circle is a money market fund that issues stablecoins.

That means Circle’s revenue hinges on just one key factor: the federal funds rate. When rates are high, Treasury yields are high, and Circle earns more for each USDC it issues. When rates are low, revenue falls. Everything else is secondary.

Below is a chain of events that led the stock price to rebound 150% from its February lows.

Since February 28, the Iran conflict has pushed oil prices up by about 35%. Oil above $100 raises inflation concerns, and inflation concerns mean that if the Fed cuts rates, it will be seen as reckless. Keeping rates unchanged on March 18 was, in practice, a foregone conclusion. Even before the war began, the Chicago Mercantile Exchange (CME) FedWatch had already shown a probability of more than 90% that rates would stay unchanged.

What the war truly changed was the market’s outlook across the whole year. Before the conflict broke out, the market expected two rate cuts in 2026—25 basis points each. After the conflict broke out, the number of cuts dropped to one, earliest after September. The probability of absolutely no rate cuts at all in 2026 almost doubled. Because rates are expected to remain high for the long term, the yield on Circle’s Treasury reserves has kept rising. Higher yields mean more revenue. More revenue means a higher stock price. War breaks out—and a stablecoin issuer benefits from it. That’s completely outside everyone’s expectations.

As background: the pessimistic expectations that pushed Circle’s stock down to about $49 in February were, in essence, a bet on rate cuts. The market expected the Fed to cut rates multiple times in 2026, which would directly compress Circle’s reserve income. A rough estimate: based on the current USDC supply of $79 billion, each 25-basis-point cut would reduce Circle’s annualized revenue by $40 million to $60 million. Two cuts would reduce revenue by nearly $100 million by year-end. Then the war changed that outlook overnight. It wasn’t because anything changed with Circle itself; it was because the macroeconomic backdrop that was supposed to undermine that argument no longer applied.

How the squeeze started

Even though the rates story helped keep the stock price elevated, the initial surge came from positioning.

Before Circle released its Q4 earnings on February 25, about 17.8% of its outstanding shares were shorted. Hedge funds built large short positions. Their logic was that rates would eventually fall, reserve income would decline, and the company had no minimum income floor that didn’t depend on rates. From a fundamentals perspective, that seemed reasonable. Then Circle reported earnings per share of $0.43, higher than the market’s widely expected $0.16. Revenue was $770 million, higher than the expected $749 million. On-chain USDC transaction volume in the quarter neared $1.2 trillion, up 247% year over year. Shorts covered. The stock jumped 35% in a single trading day. According to 10x Research, hedge funds lost about $500 million in a day due to their short positions. Then this short war only intensified, extending the positive momentum from the earnings release.

The Coinbase issue

Here’s the part that didn’t make it into the bullish narrative.

Circle had a net revenue loss of $70 million in 2025, not a profit. Q4 was strong, but the full-year performance was weak. To understand why, you need to understand the Coinbase protocol—this is the most important and also the easiest to overlook element in Circle’s business.

When USDC was initially launched in 2018, Circle and Coinbase formed a joint consortium to manage it. That consortium was dissolved in 2023, and Circle fully controlled the issuance of USDC. However, Coinbase retained a share of the revenue.

Coinbase takes 100% of the revenue from USDC reserves held on its platform, and splits everything else with Circle on a 50/50 basis. In 2024, this arrangement sent $908 million of the company’s total distribution costs of $1.01 billion directly to Coinbase. Roughly, for every dollar earned, $0.54 flows to a company that doesn’t issue tokens and doesn’t handle reserves. By early 2025, Coinbase’s share of total USDC supply held had reached 22%, up from just 5% in 2022. The more USDC grows on Coinbase’s platform, the more revenue Circle generates.

The agreement automatically renews every three years, so Circle cannot exit unilaterally. The outcome of the next renegotiation will directly affect Circle’s profit margins. In Q4 2025, distribution costs alone were $461 million, up 52%. Part of the $70 million net loss for the year was due to a one-off equity incentive expense of $424 million after the IPO, making the accounting loss look worse than the underlying business reality. But Circle’s core business still faces a structural cost problem, one that no interest-rate environment can fully fix.

The market is valuing Circle as infrastructure. But the income statement shows it as an interest-rate trading business, with high distribution costs. Both views can be true at the same time—the difference lies in how the market is pricing it. Right now, the market is buying the best versions of both views simultaneously.

Is what’s happening more than just a macro trade?

USDC supply has recently reached $79 billion, a new all-time high, while the entire crypto market is down 44% from its October peak. This divergence is worth paying attention to. Speculative assets typically fall when the market falls. The reason USDC keeps growing is that people use it to move funds—not to hold it as a speculative instrument. During the Iran conflict, demand for USDC spiked in the Middle East precisely because traditional banking systems became unreliable. When normal payment channels break down, people use USDC for remittances and cross-border transfers. That’s what payment infrastructure looks like under stress: increased usage, not decreased usage.

Trading data backs this up too. In February alone, USDC adjusted trading volume reached roughly $1.26 trillion, while USDT’s trading volume over the same period was $514 billion. Even though Tether’s market cap is still as high as $184 billion, and USDC’s market cap is only $79 billion—based on total supply, the gap is massive. But now, USDC’s trading volume is already exceeding USDT’s.

“Dormant supply” and “active settlement” are two different concepts. The former is where people store funds; the latter is the funds people actually use when they need to transfer value.

Druckenmiller published a highly insightful take this week. In a Morgan Stanley interview recorded on January 30 and released earlier, he said he expects global payment systems over the next 10 to 15 years to run on stablecoins, and called crypto “a solution looking for a problem.” This highly authoritative macro investor draws a clear line in the sand for the crypto space: stablecoins are inevitable infrastructure, while everything else is still looking for a reason to exist. That argument is the theoretical foundation for bullish crypto views.

The infrastructure bet

Tokenized assets have grown from roughly $1.5 billion at the start of 2023 to around $26.5 billion today. Many products—including BlackRock’s tokenized Treasury fund BUIDL (currently holding more than $120k in assets)—depend on USDC for subscriptions, redemptions, and settlement processing. The prediction market expects transaction volume handled in 2025 to exceed $22 billion, with most settled in USDC. Only Polymarket. Visa now supports more than 130 stablecoin-linked cards across over 50 countries, with an annualized settlement volume of about $4.6 billion.

Tokenized asset size has grown from roughly $1.5 billion at the start of 2023 to about $26.5 billion today. Many products like BlackRock’s tokenized Treasury fund BUIDL (currently with assets over $12.6k) depend on USDC for subscription, redemption, and settlement. The prediction market expects trading volume in 2025 to exceed $22 billion, with most settled in USDC. Only Polymarket has achieved this. Visa currently supports more than 130 stablecoin-linked cards in 50 countries, with an annualized settlement volume of about $4.6 billion.

Circle is building the infrastructure underneath all of this too. Circle’s payments network connects 55 financial institutions and achieves annual transaction volume of $5.7 billion, enabling banks and payment providers to transfer USDC across borders and directly exchange it into local currencies. Circle’s proprietary Layer-1 blockchain, Arc, is designed to fully support the institutional layer. Its settlement infrastructure does not rely on Ethereum or Solana. While Ethereum and Solana are not yet large enough to materially affect revenue, they are strategic investments for the future—prepared for the possibility of future rate cuts.

The AI layer may be smaller in terms of dollars, but its structure is meaningful. Data released in March by Circle’s global head of marketing shows that over the past nine months, AI agents completed 140 million payments totaling $43 million. Of these, 98.6% of transactions are settled in USDC, with an average transaction size of $0.31. There are already more than 400k AI agents with purchasing power. Even though the amounts are still small, the direction is hard to ignore. If AI agents need to pay each other for computation, data access, and API calls at extremely high frequency and very low amounts (under $0.25), then they need a payment method that can settle instantly and at zero cost. That’s exactly what Circle built with Nanopayments. Nanopayments provides gasless USDC transfers as low as $0.000001, with transactions packaged off-chain and settled in batches. The testnet currently supports 12 blockchains, including Arbitrum, Base, and Ethereum.

This is the market’s $123-per-share price for Circle right now. This company sits at the core of tokenized finance, AI agent commerce, cross-border payments, and prediction markets—and benefits from regulatory tailwinds from the GENIUS Act and the potential passage of the CLARITY Act before summer. Bernstein’s price target is $190; Clear Street’s target is $136; and Seaport Global—the Wall Street firm most bullish on Circle—has a target price of $280.

The lingering tension

Here, I want to be candid about one thing bullish takes often overlook.

Circle’s profitability depends on a high-interest-rate environment. But that’s not sustainable. The Fed will eventually cut rates. Then the Treasury yields backing USDC will fall, and Circle’s interest income will decline too.

Circle knows this. It has been expanding into businesses like transaction fees, enterprise services, the payments network, and Arc. Those businesses don’t depend on the interest-rate environment. But for now, their revenues are still negligible. Reserve income remains the core.

So you have two different situations sitting on the same stock price—but they are not the same investment.

The infrastructure thesis argues that USDC is becoming a real payments rail. It’s regulated, transparent, and increasingly integrated into the traditional financial system, and its influence isn’t affected by interest-rate swings. This thesis is supported by data—transaction volumes, institutional consolidation, Druckenmiller’s remarks, and Mizuho’s description of stablecoins as the foundational layer of global financial infrastructure. If this thesis is correct, then Circle’s valuation looks low regardless of the interest-rate environment, because its addressable market spans the entire global payments system.

The interest-rate trading thesis argues that Circle is betting on rates staying high long term, and that the stock price has already priced in expectations that the Fed will not cut rates significantly anymore. If this is the driver of the stock price, then every percentage point the Fed eventually cuts will become a headwind—and the stock’s current price is already above what the fundamentals under a “normal” rate environment would support.

Both views are already reflected in the price. The war makes it hard for the market to determine which one it’s truly leaning toward.

The most important thing to understand about CRCL right now may not be whether it can rise to $190—it may be what you’re actually investing in: infrastructure, or a more self-promoting substitute for Treasury yields. The former is suited for long-term holding, while the latter becomes immediately invalid the moment Jerome Powell changes his mind.

For now, this war is keeping both alive. Oil prices played a key role, and the company’s real value lies in the gap between these two scenarios: it has already found a way to create a dollar-denominated internet money—but now it has to figure out how it survives when dollar yields stop hitting 5%.