Morgan Stanley Downgrades Circle on USDC Growth Headwinds
In brief
- Morgan Stanley cut Circle's price target 64% to $38, downgrading to underweight from equal-weight
- USDC supply growth expected to fall 33% in 2027 and 44% in 2028 due to margin pressure
- Tokenized money market funds and Open USD stablecoin model threaten Circle's earnings
- Circle stock fell 6% on downgrade, down 30% year-to-date
Downgrade and valuation collapse
Circle's stock slid 6% following the report, extending losses to roughly 30% year-to-date. The 64% price-target cut reflects Morgan Stanley's view that the company faces secular headwinds in its core stablecoin business.
Morgan Stanley expects slower USDC growth as reserve income comes under pressure and Circle shifts toward lower-margin transaction revenue. 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.
Competition and margin squeeze
Morgan Stanley also pointed to rising competition from tokenized money market funds and tokenized deposits, which could siphon balances from USDC and erode reserve economics. BlackRock expanded its push into tokenized finance with the debut of two blockchain-based money market products on Monday, underscoring the competitive threat.
Circle's agentic payments transaction volume has fallen to about $41,900 per day, with an implied average transaction size of roughly 24 cents, suggesting limited traction in new revenue channels.
Structural challenges
Open USD, a new stablecoin model with shared governance and reserve economics, could increase Circle's distribution incentive costs and further compress margins. This model represents an emerging competitive dynamic in the stablecoin space.
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, where both companies may increasingly compete to expand USDC distribution at the expense of profitability.
