Morgan Stanley Slashes Circle Price Target Amid Shrinking USDC Demand

Circle's stock has taken a hit after Morgan Stanley downgraded its price target from $106 to $38, citing concerns about the company's revenue model and shrinking USDC supply. The bank argues that tokenized money market funds are replacing stablecoin balances as the preferred vehicle for on-chain dollar exposure, eroding the reserve income model that generates most of Circle's revenue.

The Hyperliquid agreement has also raised red flags, with JPMorgan warning of a 'prisoner's dilemma' between Circle and Coinbase. Under this arrangement, Coinbase collects 90% of the reserve income generated by USDC balances on Hyperliquid, leaving Circle with lower-margin transaction revenue.

Morgan Stanley reduced its supply forecast for USDC by 33% for 2027 and 44% for 2028, citing a structural decline in demand. The bank also noted that Circle's push into agentic payments has not gained traction, with transaction volume falling to $41,900 per day.