Circle Shares Drop After Morgan Stanley Downgrades CRCL and Slashes Price Target

What to Know

• Morgan Stanley downgraded Circle to underweight from equal-weight on Monday.
• The bank cut its price target on CRCL to $38 from $106.
• Circle shares slid 6% following the downgrade.
• The stock has fallen about 30% year-to-date.
• Morgan Stanley lowered its USDC supply forecasts by roughly 33% for 2027 and 44% for 2028.
• The bank said weaker reserve income and a shift toward lower-margin transaction revenue could weigh on earnings.
• Analysts flagged competition from tokenized money market funds, tokenized deposits, and Open USD.
• Morgan Stanley said transaction volume tied to Circle’s agentic payments push has fallen to about $41,900 per day, with an implied average transaction size of roughly 24 cents.
• The bearish call follows a separate downgrade from JPMorgan tied to Circle’s revised agreement with Hyperliquid and concerns over USDC economics.

Circle Faces Renewed Pressure After Downgrade

Circle shares moved lower after Morgan Stanley downgraded CRCL to underweight from equal-weight and sharply reduced its price target to $38 from $106, adding to investor concerns around the company’s earnings trajectory and the competitive position of USDC. The move placed fresh attention on the stablecoin issuer’s dependence on reserve income, a revenue stream that can be highly sensitive to changes in the size of USDC supply and the economics of distribution partnerships.

The stock slid 6% following the downgrade, extending a difficult stretch for CRCL. Circle shares have fallen about 30% year-to-date, a decline that reflects growing caution around the company’s core business model. USDC remains Circle’s largest source of revenue, and any sustained slowdown in stablecoin supply growth can have a direct impact on expectations for future earnings.

Morgan Stanley’s reassessment centered on the view that USDC growth may be weaker than previously expected through 2028. The bank reduced its supply forecasts by roughly 33% for 2027 and 44% for 2028, signaling a much more cautious outlook for the stablecoin’s expansion. That reduction fed into lower earnings expectations, with GAAP earnings-per-share estimates placed about 3% below Wall Street consensus in 2027 and 20% below consensus in 2028.

USDC Growth and Reserve Income Move Into Focus

For Circle, the economics of USDC are central to the investment debate. Stablecoin issuers generally earn revenue by holding reserves backing tokens and generating income on those reserves, while users benefit from a digital dollar instrument that can move across crypto markets and blockchain networks. When supply expands, reserve balances can grow. When supply contracts or grows more slowly, reserve income can become more exposed.

Morgan Stanley analyst James Faucette said the downgrade reflected concerns that USDC contraction exposes reserve income sensitivity and points toward a lower-margin shift into transaction revenue. That distinction matters because reserve income has been a major driver of profitability for stablecoin issuers, while transaction revenue can depend more heavily on payment volumes, network usage, pricing power, and commercial adoption.

The bank’s view suggests that Circle may face a more challenging balance between defending USDC’s market position and maintaining attractive margins. If distribution incentives rise while reserve income becomes less dependable, profitability may come under pressure even if the broader stablecoin sector continues to draw attention from investors, payment companies, and financial institutions.

Tokenized Money Market Funds Add Competitive Pressure

Another concern highlighted in the downgrade is the rise of tokenized cash products. Morgan Stanley pointed to growing competition from tokenized money market funds and tokenized deposits, which could reduce both USDC balances and the revenue Circle earns on reserves. These products may appeal to users seeking blockchain-based exposure to cash-like instruments while potentially offering different governance, yield, or settlement features than traditional stablecoins.

BlackRock expanded its push into tokenized finance on Monday with the debut of two blockchain-based money market products designed to serve both traditional investors and the growing stablecoin industry. The move underscores how large financial institutions are increasingly exploring tokenized products that could compete with, complement, or reshape demand for stablecoins such as USDC.

Tokenized money market funds are important because they may blur the line between crypto-native stablecoins and more traditional financial products delivered through blockchain infrastructure. If investors can access tokenized cash equivalents through established asset managers, stablecoin issuers may need to compete more aggressively on distribution, utility, liquidity, and integrations. That competition could affect balances, margins, and long-term earnings power.

Open USD Raises Questions About Stablecoin Economics

Morgan Stanley also cited Open USD as a competitive threat. Open USD is described as a new stablecoin model with shared governance and reserve economics. The bank suggested that this structure could make it more expensive for Circle to maintain USDC distribution incentives, particularly if partners and platforms seek better economics from stablecoin issuers.

The stablecoin market has historically rewarded scale, liquidity, trust, and broad exchange integration. However, new models that alter how governance and reserve economics are shared may pressure established issuers to give up more economics to maintain adoption. For Circle, that could mean a tougher environment in which USDC must remain widely distributed while still supporting the company’s earnings profile.

This is one of the key tensions now facing stablecoin businesses. The market’s long-term opportunity remains significant, especially as digital dollar settlement becomes more embedded in crypto trading, decentralized finance, payments, and institutional blockchain use cases. At the same time, more competition can reduce the margin advantages enjoyed by early leaders and force issuers to spend more to protect market share.

Agentic Payments Adoption Appears Limited

Morgan Stanley also expressed skepticism about Circle’s push into agentic payments. The bank said transaction volume has fallen to about $41,900 per day, with an implied average transaction size of roughly 24 cents. Those figures suggest limited commercial adoption so far, at least based on the activity cited in the downgrade.

Agentic payments refer broadly to payment activity that may be initiated or facilitated by software agents, automated systems, or machine-driven workflows. The concept has drawn attention because digital dollars could, in theory, support new forms of automated commerce. However, the figures cited by Morgan Stanley indicate that this area may not yet be large enough to materially offset pressure in Circle’s core reserve-driven revenue model.

For investors, the question is whether emerging transaction-based opportunities can scale meaningfully over time. A successful expansion into payments could diversify Circle’s revenue mix, but transaction revenue typically requires high usage, deep merchant or platform adoption, and durable pricing. Morgan Stanley’s downgrade indicates caution about whether these initiatives can support the company’s valuation in the near term.

JPMorgan Downgrade Adds to the Bearish Tone

The Morgan Stanley downgrade follows a bearish call from JPMorgan, which focused on Circle’s revised agreement with crypto exchange Hyperliquid. JPMorgan argued that the arrangement weakened USDC’s economics and highlighted a growing prisoner’s dilemma between Circle and Coinbase. In that framing, both companies may increasingly compete to expand USDC distribution at the expense of profitability.

The Coinbase relationship is important to the broader USDC ecosystem, while exchange and platform integrations remain a major pathway for stablecoin circulation. If platforms demand more favorable economics, stablecoin issuers may need to share more revenue or offer larger incentives. That can help maintain or grow distribution, but it can also reduce the profitability of each unit of stablecoin supply.

The concern is not simply whether USDC can remain relevant. It is whether the economics of staying relevant become less attractive as competition intensifies. In a market where liquidity and availability are vital, issuers may feel pressure to accept lower margins to keep tokens deeply integrated across trading venues, decentralized finance protocols, and payment networks.

Investor Debate Turns to Valuation and Durability

The downgrade sharpens the debate over how investors should value Circle. Supporters of the stablecoin sector continue to point to the potential for digital dollars to become a larger part of global financial infrastructure. Stablecoins can offer fast settlement, crypto market liquidity, and programmable transfer features that traditional banking systems do not always provide with the same flexibility.

Still, equity investors are weighing that long-term opportunity against nearer-term earnings risk. Morgan Stanley’s reduced forecasts through 2028 point to concerns that supply growth, reserve income, and margins may not support earlier expectations. The lower price target of $38 from $106 reflects a significant reset in the bank’s view of Circle’s earnings power and risk profile.

For now, CRCL remains under pressure as market participants assess whether the company can defend USDC’s position while managing competition from tokenized money market funds, tokenized deposits, Open USD, and aggressive distribution arrangements. The next phase of the story may depend on whether USDC supply stabilizes, whether transaction revenue can scale, and whether Circle can preserve enough economics from its partnerships to satisfy investors.

Frequently Asked Questions (FAQs)

Why did Circle shares fall?

Circle shares fell after Morgan Stanley downgraded CRCL to underweight from equal-weight and cut its price target to $38 from $106, citing a weaker long-term earnings outlook.

How much did Circle stock move after the downgrade?

The stock slid 6% following the downgrade, adding to a year-to-date decline of about 30%.

What is Morgan Stanley’s main concern about Circle?

Morgan Stanley is concerned that slower USDC growth, weaker reserve income, and a shift toward lower-margin transaction revenue could weigh on Circle’s future earnings.

How did Morgan Stanley change its USDC forecasts?

The bank reduced its USDC supply forecasts by roughly 33% for 2027 and 44% for 2028, which contributed to lower earnings expectations.

What role does USDC play in Circle’s business?

USDC is Circle’s dollar-backed stablecoin and its largest source of revenue, making supply growth and reserve income central to the company’s financial outlook.

Why are tokenized money market funds a concern?

Tokenized money market funds and tokenized deposits could compete with USDC for blockchain-based cash balances, potentially reducing the reserves and revenue available to Circle.

What is Open USD and why does it matter?

Open USD is a new stablecoin model with shared governance and reserve economics. Morgan Stanley said that structure could make it more expensive for Circle to maintain USDC distribution incentives.

What did Morgan Stanley say about agentic payments?

The bank said transaction volume tied to Circle’s agentic payments push has fallen to about $41,900 per day, with an implied average transaction size of roughly 24 cents, suggesting limited commercial adoption.

How does JPMorgan’s view fit into the story?

JPMorgan also downgraded Circle, arguing that a revised agreement with Hyperliquid weakened USDC’s economics and highlighted competitive tension between Circle and Coinbase over distribution and profitability.

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