Circle (CRCL) was already in trouble before the Iran war broke out, and it may be an unlikely beneficiary of the conflict.
The stock rose 10% on Monday, outperforming other cryptocurrency-related stocks and has gained 86% in the past month, but is still down sharply since its post-IPO peak last summer.
Japan’s Mizuho Bank said Circle’s gains were partly due to rising oil prices after tensions in the Middle East escalated. Rising crude oil prices could reignite inflationary pressures, potentially reducing expectations of a rate cut by the Federal Reserve.
All else being equal, stablecoin issuers are believed to benefit from higher interest rates because it means a higher dollar return on their investments.
In fact, oil prices have been surging since hostilities broke out in the Gulf, with WTI crude prices up about 35% since February 28. Rising energy prices tend to fuel inflation and could limit central banks’ ability to cut interest rates.
Positioning certainly plays a role, too.
Although the company reported a solid increase in USDC supply in its fourth-quarter earnings, analysts said the magnitude of the change likely reflected heavy short trading ahead of the release.
“The magnitude of the move is not just about the headline numbers. Positioning is the real catalyst,” said Markus Thielen, founder of 10x Research.
Hedge funds had accumulated a large number of bearish bets ahead of the report, according to his data. This setup creates what Thielen calls “a high-probability short squeeze rather than a fundamental re-rating.”
According to FactSet data, short interest is currently about 13% of the float, which equates to about two days of covering time.
Read more: Circle uses its own stablecoin for internal payments, moving $68 million in just 30 minutes