Shares of Circle Internet Group (CRCL -8.06%) are falling on Tuesday, down 8.3% as of 3:11 p.m. ET. The drop comes as the S&P 500 gained 0.1% and the Nasdaq Composite lost 0.3%.

Circle, the company behind the second most popular stablecoin, USDC, received a sell rating downgrade from a Wall Street analyst.

Circle is a sell according to Compass Point

An analyst at the investment bank Compass Point downgraded Circle stock to a sell, citing two main issues: one, an increasingly competitive market that could threaten Circle as a leader in the space, and two, valuation concerns.

The downgrade came with a significant price target cut -- from $205 to $130. The analyst also said that despite the passing of the Genius Act, a bill that provides a regulatory framework for stablecoins in traditional banking and finance, he does not see upside. He believes investors will "sell the news," saying: "Crypto investors typically sell the news after highly anticipated events. As such, we expect CRCL to retrace some of its recent rally."

Image source: Getty Images.

The downgrade helped take the wind out of Circle's sails as investors began to digest the stock's incredible rally.

Circle's valuation is not sustainable

Circle's stock has skyrocketed since its recent initial public offering and now trades at a valuation that I don't think makes sense. Although its USDC is the second most popular stablecoin, I think there is a considerable threat from banks themselves creating their own and bypassing the need for USDC. Its current market capitalization of more than $43 billion and net income last year of just $155 million doesn't line up for me, and I would avoid the stock.