Circle’s USDC Decline: Morgan Stanley’s Harsh Downgrade

Morgan Stanley downgraded Circle Internet (CRCL) shares to underweight, slashing the price target to $38 and flagging uncertainty around the company’s USDC reserve income.

The Dark Cloud Over Stablecoins: USDC’s Slowing Growth

USDC, Circle’s primary revenue stream, posted a 30% decline in 2023 and the stock has slipped 30% year‑to‑date. Analyst James Faucette stressed that the slowdown directly pressures reserve earnings.

Morgan Stanley’s Key Numerical Insights

The research note highlighted several figures:

■USDC supply forecast trimmed by 33% for 2027 and 44% for 2028.

■GAAP EPS estimate for 2027 sits 3% below Wall Street consensus.

■The 2028 projection trails consensus by 20%.

■Daily transaction volume around $41,900, with an average transaction size of roughly $0.24.

Competitive Pressure: Tokenized Money‑Market Funds and New Stablecoin Models

BlackRock’s launch of tokenized money‑market products directly challenges USDC, while Open USD’s shared‑governance design could raise Circle’s distribution incentive costs.

Market Reaction and Investor Sentiment

The stock fell 6% after the downgrade, and investors are increasingly wary of USDC’s long‑term profitability. JPMorgan’s parallel downgrade highlighted a “prisoner’s dilemma” between Circle and Coinbase, underscoring competitive tension.

The market now treats Circle as a short‑term risk due to its shift toward low‑margin transaction revenue and the fragility of USDC reserve income. In the longer run, the rise of tokenized money‑market funds and alternative stablecoins could erode Circle’s market share, pushing the share price toward $30 or lower.