Mizuho expresses skepticism regarding Circle's new banking status, highlighting ongoing challenges for USDC amid rising competition.
Japanese investment bank Mizuho has voiced concerns about Circle's recent approval from the Office of the Comptroller of the Currency (OCC) to operate the First National Digital Currency Bank. While this development is seen as a positive step, Mizuho maintains that it does not effectively address the stagnating growth of the USDC stablecoin or the increasing competition it faces.
In a report led by analyst Dan Dolev, Mizuho describes the market's reaction to Circle's bank approval as overly optimistic. The report notes that USDC's market capitalization has been on a decline since March, raising significant concerns about its growth potential. Following the announcement of the bank approval, Circle's stock initially surged by 5%, but quickly retraced those gains, closing 4.7% lower at $63.03 by Monday.
Circle's challenges are underscored by a notable drop in USDC's circulating supply, which fell by approximately $7 billion since its peak in March, bringing the total to around $74 billion in July. This contraction is the most significant monthly decrease since 2022, suggesting a troubling trend where redemptions are outpacing new issuances. Analysts worry that this slowdown could adversely affect Circle's transaction and reserve-income projections, even as on-chain usage remains strong.
Furthermore, Mizuho warns of heightened competitive pressures from the newly introduced Open USD stablecoin, backed by a consortium of over 140 firms including major players like Mastercard and Coinbase. The emergence of consortium-backed stablecoins could commoditize the market, posing a threat to Circle's competitive position despite its newly acquired banking charter.
Mizuho concludes its report with a cautious outlook, stating, "We remain on the sidelines," as the bank emphasizes that regulatory approval alone does not mitigate the fundamental challenges facing Circle and its USDC stablecoin.
