Why Circle Internet Stock Skyrocketed 83.2% This Week

Shares of Circle Internet Group (NYSE: CRCL) have soared this week, finishing up 83.2% from last week's close. The massive run came as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) were relatively flat.

The company, which IPO'd earlier this month, is the sole issuer of USDC, one of the most popular stablecoins on the market. Investors sent the stock soaring this week after the U.S. Senate passed the GENIUS Act, a landmark bill that would create a federal regulatory framework for stablecoins.

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One step closer for stablecoins

The bill allows banks, fintech firms, and retailers to legally issue and use stablecoins, while also establishing consumer protections and regulatory oversight for their use. The bill must now clear the House of Representatives. House members will need to reconcile the bill with their own version, which contains some key differences, especially in what agencies would take the lead in regulating the market. If the bill successfully makes its way to President Trump's desk and is signed into law, it will mark a watershed moment for stablecoin adoption and the cryptocurrency market at large.

Sen. Kirsten Gillibrand, a co-sponsor of the bill, said the bill aims to "enable U.S. businesses and consumers to take advantage of the next generation of financial innovation" and "protect consumers, enable responsible innovation, and safeguard the dominance of the U.S. dollar."

Circle Stock is hot, but there are issues

Since its IPO earlier this month, Circle stock has risen nearly 200%. While I think the excitement is warranted, investors should pay attention to valuation. With a market cap of nearly $60 billion and sales last year of $1.7 billion, there is a lot of growth priced in already.

Image source: Getty Images.

While I think Circle could do very well and that $1.7 billion is likely to grow significantly if the GENIUS Act becomes law, there are two factors that make me wary of the stock, given its valuation.

One, the company's revenue is directly tied to interest rates, which are currently elevated. As the Federal Reserve cuts rates, which they are expected to do later this year, the company's bottom line will be hit. Two, a significant chunk -- roughly 50% -- of Circle's revenue is paid to Coinbase as part of the two companies' relationship. That percentage can change based on how much USDC Coinbase holds on its exchange. That means Circle's fate is directly tied to decisions made at another company.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.