Dragonfly Investor: Interest rate cuts are a disaster for Circle, leading to a significant reduction in revenue and profit

ChainCatcher news, Dragonfly investor Omar stated in a post on X regarding interest rate cuts: "The interest rate cut is a disaster for interest-sensitive companies like Circle: a 100 basis point cut will lead to a decrease in annual total revenue of $618 million, a reduction in gross profit of $303 million, and a decline in profit margin of 3.3 percentage points; from a valuation perspective, it will push the valuation of a company that already has an EV/annual gross profit of 42 times to further rise to 60.4 times (a premium of about 50%).

To offset the impact, Circle needs to increase the circulation of USDC by $28 billion (equivalent to 44% of the current scale of $64 billion) to maintain the status quo. Against the backdrop of an inevitable interest rate cut, this explains why there was a massive stock sell-off of about $1.5 billion yesterday and reveals why Circle is eager to advance new products that can monetize trading flows (CPN and Circle Chain)."