Morgan Stanley slashed its price target on Circle from $106 to $38, citing shrinking USDC supply and intensifying competition from tokenized money market funds.
Circle Internet took a beating on Monday after Morgan Stanley downgraded the stablecoin issuer to underweight from equal-weight, cutting its price target from $106 to a strikingly low $38. Shares dropped nearly 4% on the news, extending what has already been a rough year for the USDC operator.
The stock is now down approximately 30% year-to-date. For a company that priced its IPO at $31 just over a year ago and watched shares pop to around $69 on opening day, the trajectory has been humbling.
The case against Circle
Morgan Stanley analyst James Faucette laid out a bearish thesis that essentially boils down to this: Circle’s core business is getting squeezed from multiple directions at once.
The bank cut its USDC supply forecasts by roughly 33% for 2027 and 44% for 2028. Morgan Stanley thinks the amount of USDC circulating in the market is going to shrink meaningfully over the next two years, and that’s a massive problem for a company whose revenue engine runs on the interest earned from reserves backing those tokens.
Morgan Stanley’s new GAAP EPS projections for 2028 sit about 20% below where the rest of Wall Street’s consensus currently lands.
Faucette pointed to several structural headwinds. Reserve income is highly sensitive to both the size of USDC supply and prevailing interest rates. As the company tries to diversify beyond pure stablecoin issuance, it’s moving toward revenue streams that carry lower margins. And the competitive landscape is getting crowded fast.
Competition is the real story
BlackRock has been aggressively pushing into tokenized cash products. Then there are alternative stablecoin models like Open USD that approach the market with fundamentally different architectures. Tokenized money market funds represent yet another vector of competition, offering institutional investors a more familiar wrapper around what is essentially the same economic proposition.
Wall Street’s growing skepticism
Morgan Stanley isn’t the first major bank to take a dim view of Circle’s prospects. JPMorgan initiated coverage back in June 2025 with an underweight rating and an $80 price target, expressing skepticism about the company’s valuation even at that earlier stage.
Circle went public on June 5, 2025, after years of attempting various paths to the public markets. The company had previously pursued a SPAC deal that fell apart, making the eventual traditional IPO feel like a long-awaited milestone.
What this means for investors
The projected contraction in USDC supply is particularly worth watching. If Morgan Stanley’s estimates prove accurate, Circle would be facing a shrinking pie at the same time it needs to convince investors that growth lies ahead. A 44% cut to 2028 supply forecasts doesn’t leave much room for an optimistic narrative.
Investors holding CRCL should be paying close attention to two metrics in upcoming quarters: USDC supply trends and the company’s progress in building non-reserve revenue streams. If supply declines materialize as Morgan Stanley projects while Circle’s diversification efforts produce only lower-margin income, the path to $38 becomes less of an outlier call and more of a base case.
