Factors Such as the Conflict in Iran and Trader Strategies May Explain the Rise in Circle’s Stock

Shares increased by another 9.7% on Monday, nearly doubling in value over the last month.

Circle stock experiences a surge as the conflict in Iran raises oil prices and inflation expectations. (CoinDesk)

Key points:

• Circle shares increased by approximately 10% on Monday, with an overall rise of 86% in the last month.
• Experts indicate that the situation in Iran and its effect on oil pricing could postpone Federal Reserve interest rate reductions, potentially benefiting the issuer of stablecoins.
• Additionally, a significant short position among traders in the stock contributed to the necessity of covering those shorts following the company’s strong fourth-quarter performance announcement.

Already on an upward trajectory prior to the conflict in Iran, Circle (CRCL) may emerge as an unexpected beneficiary of the situation.

The stock jumped by 10% on Monday, surpassing the performance of other crypto-related equities, and is now up 86% over the past month, although it remains considerably lower than its peak following the IPO excitement last summer.

Mizuho, a Japanese bank, noted that part of Circle’s stock surge is attributed to the rise in oil prices resulting from increased tensions in the Middle East. Escalating crude prices may reignite inflationary pressures, which could diminish expectations for rate cuts by the Federal Reserve.

In general, stablecoin issuers are believed to benefit from elevated interest rates as it leads to higher returns on their invested capital.

Indeed, oil prices have significantly risen since the outbreak of hostilities in the Gulf, with WTI crude climbing approximately 35% since February 28. Rising energy costs typically contribute to inflation and can restrict the ability of central banks to lower interest rates.

Market positioning has also likely influenced this trend.

While the company reported robust growth in USDC supply during its fourth-quarter earnings, analysts suggest that the extent of the stock movement likely indicates a crowded short position before the results were released.

“The size of the movement wasn’t solely based on the headline figures. Positioning was the actual driver,” stated Markus Thielen, founder of 10x Research.

According to his analysis, hedge funds had amassed significant short positions ahead of the earnings report, creating what Thielen described as a “high-probability short squeeze rather than a fundamental re-rating.”

Currently, short interest is approximately 13% of the float, equating to around two days needed to cover, based on FactSet data.

Read more: Circle transfers $68 million in just 30 minutes by utilizing its own stablecoin for internal transactions