Circle (CRCL) stock is again upgraded by short sellers! Wall Street warns: Bank stablecoins will become the biggest threat?

On January 30, news broke that Circle (CRCL) stock was upgraded by analysts for the second time in a week, and this time, the shift was made by Wall Street professionals who were previously the most bearish on the stock. Compass Point analyst Ed Engel upgraded Circle’s rating from “Sell” to “Neutral” and set a target price of $60, which is below the previous $75 but also reflects that the market has partially priced in the company’s risks.

On the same day, Circle’s stock closed at $67.55, having dropped as much as 7.3% during the trading session, with a slight rebound after hours. Notably, just the day before, Mizuho Securities’ Dan Dolev also revised his previously bearish stance. The consecutive shifts of these long-term bears have caused subtle changes in market sentiment.

Ed Engel pointed out that his upgrade was not due to a significant improvement in Circle’s fundamentals but because the company’s “attributes” have changed. Today, Circle is more like a crypto asset-related company rather than a traditional fintech enterprise. Data shows that since last year’s market correction, USDC’s price movement has been highly synchronized with Ethereum, with a correlation of 0.66, and this state is expected to continue at least until mid-2026.

The reason is that over 75% of USDC is used in high-risk crypto trading or lending scenarios, making Circle’s revenue highly sensitive to the crypto market cycle. Despite being called a “stablecoin,” its business itself is not stable.

On the regulatory front, Engel believes there is about a 60% chance that the CLARITY Act will pass by 2026, which would provide clearer regulatory frameworks for stablecoins and could boost USDC supply. Meanwhile, exploration of tokenization of US equities and ETFs in the DeFi space may also bring new growth sources for Circle.

However, competitive pressure is rapidly increasing. Since December last year, USDC supply has decreased by 9%. Emerging stablecoins like USDH, CASH, and PYUSD are diverting market demand. At the same time, traditional US banks are developing “deposit coins,” which could directly challenge USDC’s position in developed markets.

Ed Engel also warned that Circle’s operating expenses in 2026 may exceed market expectations and may not turn into profits in the short term. Nevertheless, if the crypto market recovers or regulatory conditions improve, CRCL stock still has some upside potential in the short term. But to truly break free from the influence of the crypto cycle, perhaps a longer time frame is needed.