Circle’s shares slipped after Morgan Stanley issued a downgrade and reduced its price target.

— Morgan Stanley moved Circle Internet to an underweight rating and trimmed its price target from $106 to $38.

— The bank lowered its forecasts for USDC supply through 2028, citing weaker reserve income and a shift to lower‑margin revenue streams.

— Analysts warned that increasing competition from tokenized cash products and alternative stablecoin designs could squeeze Circle’s earnings.

Morgan Stanley downgraded Circle Internet (CRCL) shares from equal‑weight to underweight on Monday, cutting the price target to $38 from $106 due to a dimmer long‑term earnings outlook.

The stock dropped roughly 6% on the news and is down about 30% year‑to‑date, reflecting investor worries about USDC, the dollar‑backed stablecoin that generates most of Circle’s revenue.

Analyst James Faucette noted that Morgan Stanley anticipates slower USDC growth as reserve income faces pressure and Circle pivots 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 trimmed its USDC supply forecasts by about 33% for 2027 and 44% for 2028, leading to GAAP EPS estimates that are roughly 3% below Wall Street consensus in 2027 and 20% below in 2028.

Morgan Stanley also highlighted rising competition from tokenized money market funds and tokenized deposits, which could erode USDC balances and the reserve‑related revenue Circle earns.

BlackRock, on Monday, expanded its tokenized finance push with the launch of two blockchain‑based money market products aimed at traditional investors and the expanding stablecoin sector.

The bank expressed skepticism about Circle’s agentic payments initiative, noting that daily transaction volume has fallen to around $41,900, implying an average transaction size of roughly 24 cents — a sign of limited commercial uptake.

The stablecoin landscape is growing more competitive after the debut of Open USD, a new model with shared governance and reserve economics. Morgan Stanley said this structure could raise the cost for Circle to sustain USDC distribution incentives.

The bearish stance follows a JPMorgan downgrade, which argued that Circle’s revised agreement with crypto exchange Hyperliquid undermines USDC’s economics. JPMorgan said the deal highlights a growing “prisoner’s dilemma” between Circle and Coinbase (COIN), where both may compete to broaden USDC distribution at the cost of profitability.

UPDATE (Aug. 3, 14:05 UTC): Removes second word of the company’s name, Internet, from the headline.

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