Circle (CRCL), already on the eve of war in Iran, could be an unlikely beneficiary of the conflict.
The stock rose 10% on Monday, outperforming other cryptocurrency-linked stocks, and the stock is now up 86% over the past month, although it remains well down from its post-IPO frenzy peak last summer.
Japanese bank Mizuho said part of the Circle’s rally reflects the jump in oil prices following escalating tensions in the Middle East. Higher crude oil prices could reignite inflationary pressures, potentially reducing expectations of rate cuts by the Federal Reserve.
All things being equal, it is believed that stablecoin issuers will benefit from higher interest rates as that means higher returns on their invested dollars.
In fact, oil prices have risen since hostilities broke out in the Gulf, with WTI crude oil up about 35% since February 28. Higher energy prices tend to fuel inflation and can limit central banks’ ability to reduce interest rates.
Surely the positioning has also influenced.
While the company reported solid growth in USDC supply in its fourth-quarter earnings, analysts say the magnitude of the move likely reflected a crowded short trade ahead of the release.
“The magnitude of the move was not just due to headline numbers. Positioning was the real catalyst,” said Markus Thielen, founder of 10x Research.
According to their data, hedge funds had accumulated significant bearish bets ahead of the report. That setup created what Thielen described as a “high probability short squeeze rather than a fundamental rerating.”
Short interest currently sits at around 13% of the float, which is roughly equivalent to two days to cover, according to FactSet data.
Read more: Circle moves $68 million in just 30 minutes using its own stablecoin for internal payments
