Morgan Stanley Slashes Circle to $38 on USDC Contraction

Morgan Stanley analysts have downgraded Circle's stock to Underweight from Equalweight and cut their price target by nearly two-thirds, citing a contraction in USDC stablecoin supply. The revised forecast assumes a 33% decrease in USDC supply for 2027 and a 44% drop for 2028.

The reduction in USDC supply would lead to lower margins for Circle, as the company's primary revenue source is interest on the $73 billion in US Treasuries and cash backing the stablecoin. This contraction exposes reserve income sensitivity and points to a lower-margin shift toward transaction revenue, according to Morgan Stanley analyst James Faucette.

Faucette also highlighted three structural headwinds driving the revision: tokenized competition from BlackRock's new blockchain-based money market products, Open USD's yield-redistribution model that embeds shared governance and reserve economics, and agentic payments stalling with daily transaction volume at approximately $41,900 per day.

In contrast, TD Cowen analyst Bryan Bergin initiated coverage of Circle at Buy with an $82 price target, implying roughly 31% upside from Friday's close. Bergin disputes the headwinds identified by Morgan Stanley, arguing that the market has not yet priced in Circle's evolution beyond its reserve-income origins.