Circle's Stock Surge Driven by Short Squeeze, Not Fundamentals
By John Nada·Feb 27, 2026·6 min read
Circle's stock skyrocketed nearly 50%, fueled by a short squeeze rather than strong financial results, raising questions about stability in the stablecoin market.
Circle's stock has surged nearly 50% in just two sessions following its fourth-quarter earnings report, but the rally is less about strong financials and more about a significant short squeeze. Analysts pointed out that hedge funds had accumulated heavy bearish positions before the earnings announcement, setting the stage for a substantial repositioning as the stock price rose sharply.
The violent movement in Circle's stock price highlights the volatility often seen in the cryptocurrency and stablecoin markets. On February 26, 2026, Circle (CRCL), the issuer of the USDC stablecoin, experienced a remarkable 45% rise within less than two trading sessions post-earnings report. This sudden spike not only reflects investor sentiment but also underscores the precarious nature of hedge fund positioning. Prior to the earnings report, many hedge funds had established sizeable short positions, betting against the stock's performance. This overcrowded bearish positioning ultimately led to a short squeeze that propelled the stock to its recent highs. As noted by Markus Thielen, founder of 10x Research, the magnitude of this move was not driven purely by strong headline numbers but was primarily a result of positioning, indicative of a high-probability short squeeze rather than a fundamental re-rating of the stock.
While Circle's report indicated growth in USDC supply, deeper analysis reveals a decline in profitability. The USDC stablecoin saw its circulation increase to $75.3 billion, reflecting a significant year-over-year growth of 72%. This impressive figure outpaced the growth of its closest competitor, Tether’s USDT, and suggests a strong demand for the stablecoin in the market. However, the company's financial performance painted a starkly different picture. Circle reported a net loss of $70 million, a sharp contrast to the $156 million profit from the previous year. This decline in profitability raises red flags about the sustainability of Circle's business model and the overall health of the stablecoin market.
Moreover, while revenue from reserve income, primarily derived from U.S. government debt backing USDC, rose by 58% to $2.64 billion, the company faced rising distribution costs that climbed 66% to $1.66 billion. These costs reflect the expenses incurred in incentivizing partners and platforms to drive adoption, a crucial factor in the competitive landscape of stablecoins. This situation highlights the complexities of scaling a stablecoin operation while maintaining financial health. As Harvey Li, founder of Tokenization Insight, eloquently stated, "Stablecoin may be scaling; stablecoin issuance is a tough business."
Despite these challenges, Circle's earnings did manage to top analyst forecasts. Japanese investment bank Mizuho raised its price target on Circle from $77 to $90 following the stronger-than-expected fourth quarter results. The analysts attributed this bullish outlook to several emerging use cases for USDC, particularly in prediction markets and a growing optimism around "agentic commerce." This concept refers to a future where autonomous AI agents conduct transactions using Circle's USDC stablecoin, potentially positioning Circle as a key player in a burgeoning market.
Mizuho's analysts, Dan Dolev and Alexander Jenkins, noted that Circle's results exceeded expectations in both revenue and profit. This success was particularly encouraging after a period of investor pessimism regarding the company's financial outlook. Management highlighted the role of prediction and betting platforms, specifically Polymarket, as significant drivers of USDC's recent growth. These platforms are characterized by high-frequency transaction flows and provide near-term utility, reinforcing the stablecoin's value proposition.
The growing role of USDC in agentic commerce is also noteworthy. As more products are developed on USDC and connected to Circle's network, trading and prediction platforms emerge as leading examples of high-velocity use cases. The potential for USDC to serve as a default currency for AI agents transacting across digital marketplaces is an exciting development that could drive further adoption and enhance the stablecoin's utility.
Looking ahead, Mizuho forecasts an average USDC circulation of approximately 123 million by 2027, projecting reserve income of around $3.7 billion and an EBITDA of $916 million for that year. These estimates assume rate cuts in line with consensus expectations and apply a 24x EBITDA multiple, which is a premium compared to peers such as Visa, Mastercard, Coinbase, and Robinhood. This bullish sentiment from analysts reflects a potential rebound, but it is tempered by the recognition that lower interest rates could still weigh on reserve income, a critical revenue stream for Circle.
The dynamics of the stablecoin market underscore the complexities of maintaining profitability while pursuing growth. Investors are left to weigh the implications of recent volatility against the ongoing challenges faced by Circle and the broader stablecoin ecosystem. The company's ability to navigate these challenges will be crucial for sustaining investor confidence and ensuring long-term success in a rapidly evolving market landscape.
Additionally, the recent surge in trading volume and interest in stablecoins, including USDC, can be attributed to various factors, including increased institutional adoption and regulatory scrutiny. As more financial institutions begin to recognize the potential applications of stablecoins in traditional finance and beyond, the competitive landscape is likely to evolve further.
Moreover, the rise of decentralized finance (DeFi) has created new opportunities for stablecoins like USDC, as they can be utilized for lending, borrowing, and trading within blockchain ecosystems. This growing sector has the potential to enhance the utility of USDC and contribute positively to Circle's overall financial health.
However, the inherent risks associated with the stablecoin market cannot be overlooked. Regulatory challenges, market volatility, and the need for robust risk management strategies remain key considerations for Circle as it seeks to expand its operations and ensure compliance with evolving regulations.
As the market continues to mature, Circle will need to remain agile and responsive to emerging trends and challenges. The company's focus on innovation and exploring new use cases for USDC will be essential in maintaining its competitive edge in a crowded market.
As this situation unfolds, investors and analysts alike will be closely monitoring Circle's performance and the broader trends in the stablecoin ecosystem. The interplay between regulatory developments, market dynamics, and technological advancements will shape the future of Circle and the stablecoin market as a whole. The coming months will be pivotal for Circle as it seeks to leverage its recent momentum while addressing the challenges that lie ahead.