Circle Internet Group Inc. (CRCL) is heading into its second-quarter earnings report with some real pressure on the profitability of its core stablecoin business. But JPMorgan thinks the market might be missing the bigger picture.

The bank trimmed its second-quarter earnings per share estimate by one cent to 15 cents, following Coinbase Global Inc.'s (COIN) earnings release, which offered new clues about the economics of Circle's USD Coin (USDC) stablecoin ecosystem.

The Analyst Thesis

Kenneth Worthington, a JPMorgan analyst, maintained an Overweight rating on Circle and a $120 price target, implying nearly 100% upside from Monday's close of $60.35.

JPMorgan expects Circle's reserve-linked distribution costs — payments to exchanges and other partners for expanding USDC adoption — to rise meaningfully in the second quarter. The firm estimates third-party distribution expenses grew to about $106 million from $81 million in the prior quarter, pushing total distribution and transaction costs to roughly $426 million. As a result, JPMorgan expects Circle's reserve-linked distribution contribution margin to fall to 39% from 42% in the first quarter.

The bank sees further pressure in the third quarter as Hyperliquid's USDC balances migrate to Coinbase, cutting into Circle's economics on those assets.

USDC Growth Is Shifting in Circle's Favor

Despite the near-term margin squeeze, JPMorgan found encouraging signs beneath the surface of Coinbase's earnings.

Coinbase held roughly $20.25 billion of on-platform USDC during the quarter, slightly below its previous estimate. That suggests a larger portion of USDC may have remained on Circle's own platform than previously expected.

JPMorgan now estimates Circle held approximately $15 billion of on-platform USDC, up from its earlier forecast of $13.6 billion.

That mix is important because USDC held on Circle's platform generates better economics than balances sitting on Coinbase's platform. While the benefit was largely offset by higher distribution payments, the shift suggests Circle continues to gain traction even as stablecoin trading and decentralized finance activity remain relatively subdued.

Why JPMorgan Still Sees Nearly 100% Upside

For JPMorgan, the current pressure on margins appears to be a cost of expanding USDC's distribution rather than a sign that Circle's business model is deteriorating.

Although the bank expects profitability to remain under pressure in the near term, it left its longer-term forecasts largely unchanged ahead of earnings.

That leaves investors with a key question heading into Wednesday's earnings report: Are shrinking margins a temporary consequence of investing in USDC's growth, or the beginning of a more structural squeeze on Circle's economics?