CRCL Looks Stretched, COIN Offers More Compelling Upside from Here
Core Strategy
Note: Our equities baskets are not risk-managed/rebalanced in the same way that our Core Strategy is. We will, under certain circumstances, remove names that are part of a tactical trade.
Geopolitics Keeps the Crypto Market on Its Heels
It is clear that crypto remains stuck in neutral, held back by uncertainty around the Israel–Iran conflict.
As we noted last week, geopolitical flare-ups almost always trigger an initial risk-off move as investors unload assets furthest out on the risk curve. We saw this twice in 2024: first after limited strikes in April, then again following broader action in late October. In both cases, crypto sold off after Iran’s aggression and rebounded once Israel responded.
Whether to hunt for opportunistic entries or fade rallies hinges on lasting effects. The key question is whether the fighting will alter the macro backdrop by changing fiscal or monetary conditions. A clear example of drawn-out damage was the Russia-Ukraine war that began in February 2022. It disrupted supply chains, worsened inflation, and likely extended the Fed’s hiking cycle.
One big swing factor would be any disruption of the Strait of Hormuz. Roughly 20% of global petroleum liquids and up to 30% of LNG pass through that chokepoint. A closure or even persistent threats to shipping would create a durable supply shock, forcing markets to reprice inflation expectations. With the Fed broadly neutral today, a supply-driven inflation spike would probably send crypto lower. Prediction-market odds of a full closure have slipped to 34%.
Another major uncertainty now centers on possible US involvement and its second- and third-order effects (which are challenging to underwrite). As the chart below shows, the latest leg lower followed mounting odds of direct US action in Iran.
This chart is from Monday and Tuesday:
One encouraging sign: both gold and crude are set to finish the week lower, suggesting peak uncertainty may be behind us.
The Stablecoin Megatrend Is Real, but It Is Time to Book Profits on Circle
In our 6/6 note we expressed high conviction in the long-run growth of stablecoins. They broaden global access to the dollar and improve B2B, P2B, and P2P payments. That view is unchanged, and Circle remains one of the few pure plays on the theme.
The trade, however, now looks stretched. At current prices Circle trades above 50x annualized Q1 revenue and more than 100x annualized Q1 adjusted EBITDA. For those multiples to hold, our assumptions indicate that the aggregate stablecoin market cap would need to double in 2025 and grow another 2.5x in 2026, or Circle would need roughly 75% market share while the market grows 50% in each of the next two years. Possible, but investors should apply a healthy discount rate to that scenario.
Circle does enjoy post-IPO advantages such as a tight float and limited short borrow, yet we would expect profit-taking to begin soon.
Coinbase Monetizes the Stablecoin Trend Better than Circle
Despite Circle’s froth, the stablecoin tailwind remains intact. Recall our 6/6 discussion of Circle’s margin profile: the company earns most of its revenue on the USDC float yet spends over half of that gross revenue on distribution. The primary distribution partner is Coinbase.
In Q1 Coinbase actually earned more stablecoin revenue net of distribution costs than Circle did ($297 million vs $231 million). Critics may point out that Coinbase shares some of that income with users through USDC rewards, but those payments support the wider ecosystem and are, in my view, higher-quality expenses than Circle’s distribution fees.
It is important to note as well, that this relationship is under contract through August 2026, at which point there is an opportunity for renegotiation. Seeing as though Coinbase controls USDC distribution, it is likely that they will have the upper hand in any deal negotiations, and the contract will renew for an additional three years.
If we apply Circle’s current revenue multiple to Coinbase’s stablecoin revenue, the rest of Coinbase trades near 1x annualized Q1 revenue. Circle’s multiple is probably too high and Coinbase’s too low. Over the next 6-12 months I expect a re-rating in both directions. Put differently, the market is overpricing stablecoin-related tailwinds for Circle and underpricing them for Coinbase.
Other Coinbase Tailwinds
Below are all recent announcements from Coinbase:
- Tokenized equities: Coinbase has requested approval from the SEC to list tokenized stocks, a move that would narrow the feature gap with Robinhood.
- USDC collateral for futures: The exchange will let users post USDC as margin for futures, improving user experience, capital efficiency, and fee potential.
- Base DEX pools inside the main app: Integration of decentralized-exchange pools on Base will expand asset coverage and migrate more on-chain activity onto Coinbase.
Separately, David Sacks suggested this week that the Clarity Act, the long-discussed market-structure bill, is gaining traction on Capitol Hill.
Regulatory clarity is bullish for altcoins, and altcoins drive the majority of Coinbase’s transaction revenue (only 26% came from BTC in Q1).
The bottom line here is that, in addition to the market underpricing its stablecoin business, there have been recent developments that create a compelling upside case for Coinbase.
