Circle Shares Drop After Morgan Stanley Downgrade Over USDC Growth Concerns

Morgan Stanley downgraded Circle Internet shares to underweight on Monday, cutting its price target sharply from $106 to $38, citing concerns over slowing growth for USDC, the company’s flagship stablecoin. Circle stock fell 7% following the report and has now declined roughly 30% since the start of the year.

Reserve Income Under Pressure

Analyst James Faucette said the bank expects USDC growth to slow as reserve income faces increasing pressure, pushing Circle toward lower-margin transaction-based revenue instead. Morgan Stanley cut its USDC supply projections by about 33% for 2027 and 44% for 2028, resulting in earnings estimates well below Wall Street expectations for both years.

Competition From Tokenized Funds and New Stablecoin Models

The bank pointed to rising competition from tokenized money market funds and tokenized bank deposits, both of which could pull balances and revenue away from USDC reserves. It also flagged Open USD, a newer stablecoin structure with shared governance, as a factor that could raise Circle’s costs to maintain distribution incentives.

Morgan Stanley expressed skepticism about Circle’s expansion into agentic payments, noting daily transaction volume of roughly $41,900 with an average transaction size near 24 cents, signaling limited commercial traction so far.