Circle's stock tanked nearly 4% Monday after Morgan Stanley slashed its price target from $106 to $38, a brutal 64% markdown that signals deepening skepticism about the stablecoin issuer's future. The downgrade to underweight reflects one core problem: USDC supply is contracting fast, and competition from institutional alternatives is strangling margins.
The bank's analysts now expect USDC circulation to shrink roughly 33% by 2027 and 44% by 2028. That matters because Circle's revenue model essentially prints money from the interest earned on reserves backing those tokens. Fewer tokens in circulation means fewer reserves to invest, which means fewer dollars flowing to the bottom line. Morgan Stanley's 2028 earnings forecast sits about 20% below Wall Street consensus, a gap that compounds when you're already down 30% year-to-date.
Circle priced its IPO at $31 just over a year ago and popped to $69 on day one. The stock has been in freefall since. What changed. BlackRock started aggressively marketing tokenized cash products to institutions, offering them a familiar wrapper around what amounts to the same economic proposition as stablecoin holdings. Then came alternative architectures like Open USD. Now tokenized money market funds are eating away at Circle's addressable market from every angle, each one a lower-margin business than pure stablecoin issuance.
JPMorgan already threw cold water on the story back in June 2025, initiating coverage with an underweight rating and an $80 price target. Morgan Stanley's move suggests the skepticism is hardening into consensus. Reserve income sensitivity to both supply levels and interest rates leaves Circle exposed to multiple macro headwinds simultaneously. The structural shifts in how institutions access stablecoin-like products are not cyclical. They're structural.
This article is informational and does not constitute financial advice. Cryptocurrency and equity valuations involve substantial risk.
