Morgan Stanley Trims Circle's Halo to $38, Leaves USDC Holding the Bag 🪙

Morgan Stanley downgraded shares of Circle Internet (CRCL) to underweight from equal-weight on Monday and slashed its price target to $38 from $106, citing a weaker long-term earnings outlook for the USDC stablecoin issuer. The stock slid 6% on the report and is down roughly 30% year-to-date as investor concern grows over the trajectory of USDC, Circle's largest revenue source. The downgrade was published Aug. 3, 2026.

Analyst James Faucette said Morgan Stanley expects slower USDC expansion 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 cut its USDC supply forecasts by approximately 33% for 2027 and 44% for 2028, putting its GAAP earnings-per-share estimates about 3% below Wall Street consensus in 2027 and 20% below consensus in 2028.

The note also flagged rising competition from tokenized money market funds and tokenized deposits, which Morgan Stanley said could reduce both USDC balances and the revenue Circle earns on reserves. BlackRock moved in the same direction on Monday, launching two blockchain-based money market products aimed at traditional investors and the stablecoin sector. Morgan Stanley was additionally skeptical of Circle's push into agentic payments, noting that transaction volume has fallen to about $41,900 per day with an implied average transaction size of roughly 24 cents, a sign of limited commercial adoption.

The bank also pointed to Open USD, a newly introduced stablecoin model featuring shared governance and reserve economics, and said that structure could make it more expensive for Circle to maintain USDC distribution incentives. The bearish call follows a separate downgrade from JPMorgan, which argued that Circle's revised agreement with Coinbase poses additional risk to its revenue mix. Circle CEO Jeremy Allaire has framed the company as a core piece of regulated dollar infrastructure on the blockchain, though analysts at Morgan Stanley see margin compression and intensifying competition weighing on the business through 2028.