Circle (CRCL) Soars 45% in Two Days as Short Squeeze Triggers $500M Hedge Fund Losses

Circle’s stock price exploded higher, surging 45% in less than two trading sessions following its fourth-quarter earnings report—a dramatic reversal that snapped an 80% decline from last year’s record highs. The massive move caught many investors off guard, but analysts point to a technical catalyst rather than fundamental improvements as the primary driver.

“The magnitude of the move was not driven purely by the headline numbers,” explained Markus Thielen, founder of 10x Research. “The real catalyst was positioning.”

According to Thielen’s data, hedge funds had accumulated substantial bearish positions heading into the earnings report. When the stock began climbing, these crowded short bets triggered a cascade of forced buying—a classic short squeeze scenario.

“We estimate hedge funds lost roughly $500 million in a single day on their short positions as shares squeezed higher,” Thielen added. His analysis suggests the move was a “high-probability short squeeze rather than a fundamental re-rating.”

The technical dynamics overshadowed what were actually mixed fundamental results. While Circle delivered strong headline growth in its USDC stablecoin supply, deeper analysis reveals profitability challenges in the business model.

USDC circulation reached $75.3 billion, representing a 72% year-over-year increase that outpaced rival Tether’s USDT growth. Reserve income—Circle’s primary revenue source from U.S. government debt backing USDC—rose 58% to $2.64 billion as interest rates compressed over the past year.

However, distribution costs climbed even faster, jumping 66% to $1.66 billion. This underscores the significant expense of incentivizing partners and platforms to expand USDC adoption. Despite surging circulation, Circle swung from a $156 million net profit in 2024 to a $70 million loss.

“Stablecoin may be scaling, but stablecoin issuance is a tough business,” noted Harvey Li, founder of Tokenization Insight, in his analysis of Circle’s fiscal year 2025 results.

The company’s fourth-quarter results did exceed analyst expectations on both revenue and profit, easing concerns after a period of market pessimism. Management highlighted prediction and betting platforms—particularly Polymarket—as significant drivers of recent USDC growth, citing their high-frequency transaction flows and near-term utility.

Circle executives also emphasized USDC’s emerging role in “agentic commerce,” describing the stablecoin as a potential default currency for AI agents transacting across digital marketplaces. This narrative around autonomous AI transactions using USDC appears to have resonated with investors despite the underlying profitability challenges.

Japanese investment bank Mizuho raised its price target on Circle to $90 from $77 following the earnings report, citing a boost from prediction markets and growing optimism around agentic commerce. The firm maintained a neutral rating, warning that lower interest rates could still weigh on reserve income.

Analysts Dan Dolev and Alexander Jenkins project average USDC in circulation of roughly 123 million by 2027, modeling reserve income of about $3.7 billion and EBITDA of $916 million that year, assuming rate cuts in line with consensus expectations. Applying a 24x EBITDA multiple—a premium to peers including Visa, Mastercard, Coinbase, and Robinhood—they arrived at their new $90 price target.

The dramatic price action highlights the volatile nature of crypto-adjacent stocks and the powerful influence of market positioning on short-term price movements. While Circle’s business continues to grow, the sustainability of its profitability model remains a question even as technical factors drive spectacular short-term gains.

Tags: Circle stock, CRCL, USDC, stablecoin, short squeeze, hedge fund losses, 10x Research, Tokenization Insight, Mizuho, agentic commerce, AI transactions, Polymarket, cryptocurrency, fintech, Nasdaq

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