Why Circle Should Outperform Coinbase

Both Circle Internet Group (NYSE: CRCL) and Coinbase (NASDAQ: COIN) have been down recently, particularly in light of the market's bearishness since last fall. It's a buying opportunity for both, but does that mean both are equally good buys? Let's find out.

Crypto exchange meets stablecoin minter

Circle and Coinbase are closely related, both operating in the crypto space. Coinbase is a major crypto exchange. Most revenue comes from transaction-based fees from crypto trading, with recurring subscriptions accounting for a smaller but growing share.

Circle mints stablecoins through a process of tokenization. Circle takes a real asset, like the US dollar, and create a token of it on the blockchain. Its primary product is USDC and earns revenue from short-term interest on the real USD it keeps in reserve. USDC is the second-largest USD stablecoin, after USDT. With these things in common, Coinbase was one of Circle's first major distributors, and it shares in the interest earned on USD.

Both provide software-based financial services and benefit from wider adoption of blockchain technology.

Why both were down recently

Their stocks began to decline in the fall of 2025 and continued to do so into 2026. The initial catalyst was President Trump's announcement of new tariffs on China on October 10, 2025. It triggered a sharp reaction in the crypto market. As this drove many out, there has been less activity and optimism, which has kept the prices of Bitcoin and other cryptocurrencies from rising. Coinbase, in particular, depends on trading activity for most of its revenue.

January also saw debate emerge over the CLARITY Act. Coinbase CEO Brian Armstrong has been highly critical of early drafts of the bill, as current law does not allow stablecoin issuers to pass through interest to customers, much as banks do with savings accounts. Sharing interest income means less near-term revenue for Circle, but it could also greatly accelerate adoption.

Why CRCL Should Outperform COIN

I believe that both should prove to be profitable investments in the long term. As it stands, both businesses are profitable and have healthy balance sheets at the end of 2025. Coinbase reported $11.2 billion in cash and $7.9 billion in debt, while Circle reported $1.5 billion in cash with no debt. Coinbase even announced in the earnings release that it was expanding its buyback program in response to the depressed share price; it isn't hurting for cash.

Nevertheless, I think Circle's business model makes it more accretive over time, shown by resilience in USDC's market cap, which is the total volume of USDC. Despite the negatives, it did not decline after the summer's euphoric rise associated with the GENIUS Act like much of crypto did. It stands above $70B since passing it in 2025, giving a larger USD reserve to yield interest for Circle. Growth should continue as uses cases expand.

For example, Polymarket, one of the leading prediction market platforms, has partnered with Circle. They announced earlier this month that all transactions would be done directly with USDC, reflecting trust in Circle's product. While Coinbase provides a platform to get into crypto, Polymarket demonstrates how smart contracts on the blockchain are valuable and trusts USDC as the medium of exchange for those contracts.

Coinbase aims to become an "everything exchange," to reduce dependence on Bitcoin trades. It wants to be an exchange that capitalizes on tokenization of real-world assets, but exchanges remain competitive. As October showed, customers can feel burned and betrayed, never to return. Coinbase still allows leverage ratios of up to 50x, which can cause liquidations and permanently lose customers' assets.

Circle faces less competition, its only major contender being Tether. As stablecoins are the medium through which crypto transactions settle, their use case is likely to grow, particularly as more business and platforms (like Polymarket) seek to utilize smart contracts and lean on USDC to make those happen. Interest rate cycles affect the yield on USD reserves, but a paradigm shift into blockchain-based finance would dwarf these near-term considerations.

Circle takes the square!

Both Circle and Coinbase are profitable companies operating in the crypto space. As public companies, they are among the most transparent in this space too. A shift into tokenization would grow the top lines of either company. Yet, Coinbase revenue is primarily transaction fees from crypto trading, which is cyclical and ultimately doesn't unlock the potential of blockchain technology.

Circle generates yield when customers put cash on chain. That is Circle's advantage. The more that finance moves on chain, the more Circle accretes, and I think resilience of USDC's market cap speaks to this. While I expect both will prove to be good investments over time, I think Circle is in a better position to accrete value over time.

Joseph Parrish owns shares of both Circle and Coinbase Global. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.