Morgan Stanley downgraded shares of Circle Internet (CRCL) to underweight from equal-weight on Monday and cut its price target to $38 from $106, citing a weaker long-term earnings outlook.
The stock, which slid 6% following the report, has fallen about 30% year-to-date, reflecting growing investor concern over the outlook for $USDC, the company’s dollar-backed stablecoin and its largest source of revenue.
Analyst James Faucette said Morgan Stanley expects slower $USDC growth as reserve income comes under pressure and Circle shifts toward lower-margin transaction revenue.
“We downgrade Circle, as $USDC contraction exposes reserve income sensitivity and points to a lower-margin shift toward transaction revenue,” Faucette wrote in a research note.
The bank reduced its $USDC supply forecasts by roughly 33% for 2027 and 44% for 2028, resulting in GAAP earnings-per-share estimates that are about 3% below Wall Street consensus in 2027 and 20% below consensus in 2028.
Morgan Stanley also pointed to rising competition from tokenized money market funds and tokenized deposits, which could reduce both $USDC balances and the revenue Circle earns on reserves.
BlackRock, on Monday, expanded its push into tokenized finance with the debut of two blockchain-based money market products designed to serve both traditional investors and the growing stablecoin industry.
The bank was also skeptical about Circle’s push into agentic payments, saying transaction volume has fallen to about $41,900 per day, with an implied average transaction size of roughly 24 cents, suggesting limited commercial adoption.
The stablecoin market is becoming more competitive following the introduction of Open USD, a new stablecoin model with shared governance and reserve economics. Morgan Stanley said that structure could make it more expensive for Circle to maintain $USDC distribution incentives.
The bearish call follows a downgrade from JPMorgan, which argued that Circle’s revised agreement with crypto exchange Hyperliquid weakened $USDC’s economics. JPMorgan said the arrangement highlighted a growing “prisoner’s dilemma” between Circle and Coinbase (COIN), where both companies may increasingly compete to expand $USDC distribution at the expense of profitability.
UPDATE (Aug. 3, 14:05 UTC): Removes second word of the company’s name, Internet, from the headline.