Morgan Stanley's bearish stance on Circle
Circle Internet (CRCL) shares fell 6% after Morgan Stanley downgraded the stock to underweight, a move that sent ripples through the stablecoin market. The bank slashed its price target for the company from $106 to $38, a stark shift in its stance on the firm. The downgrade comes after the bank expressed concerns about the slowing growth of Circle’s USDC stablecoin and its financial health.
Analyst James Faucette highlighted that USDC’s reserve income is under pressure and that the company is shifting toward lower-margin transaction revenue. That move, according to Morgan Stanley, signals a weaker long-term earnings outlook for the stablecoin issuer. The report also noted that competition from new tokenized cash products could further pressure Circle’s ability to retain users and generate income.
Growing threats from new stablecoin models
Morgan Stanley pointed to the rise of Open USD, a new stablecoin with a shared governance model, as a growing threat to Circle's dominance in the market. The structure of Open USD could increase the cost for Circle to maintain incentives for USDC holders and users, the bank warned. Additionally, the report expressed skepticism about Circle’s agentic payments strategy, citing low transaction volumes and minimal commercial adoption.
BlackRock has also entered the tokenized finance space with two new blockchain-based money market products. These moves are seen as a direct challenge to Circle’s USDC. Morgan Stanley argued that these new entrants may dilute USDC’s market share and the stablecoin issuer’s income from its reserve assets.
A competitive market shifts under pressure
The bearish call from Morgan Stanley follows a similar downgrade from JPMorgan, which cited a weakened economic model for USDC. JPMorgan raised concerns about the prisoner's dilemma emerging between Circle and Coinbase, suggesting both companies may have to sacrifice profitability to expand USDC’s reach.
As the stablecoin market becomes more competitive, Circle faces challenges from both traditional finance players and new crypto-native models. The company’s ability to maintain its USDC advantage, while improving margins, will likely be tested in the coming quarters.