Circle shares slide after Morgan Stanley slashes price target to $38

Circle Internet Group has received a downgrade from Morgan Stanley, which has lowered its rating to Underweight from Equal Weight and reduced its price target to $38 from $106 after cutting long-term expectations for USDC growth.

Morgan Stanley said the downgrade follows lower forecasts for USDC circulation and concerns that Circle’s earnings model could face pressure as reserve income becomes more sensitive to slower stablecoin growth and increasing competition from tokenized cash products.

Circle shares fell about 6% in premarket trading on Monday to $58.81 after the research note was published, even as another Wall Street firm took the opposite view by initiating coverage with a bullish rating.

Morgan Stanley expects slower USDC expansion

Morgan Stanley reduced its assumptions for USDC circulation by about 33% for 2027 and 44% for 2028, arguing that the stablecoin has not expanded as quickly as previously expected. The brokerage also lowered its GAAP earnings-per-share estimates to around 3% below consensus for 2027 and roughly 20% below consensus for 2028.

According to analyst James Faucette, Circle’s reserve-income business faces increasing pressure because tokenized money market funds and tokenized deposits could compete for the same capital that would otherwise remain in USDC. The report also argued that USYC, Circle’s tokenized money market fund, carries structurally lower economics than its reserve-income business.

Morgan Stanley further said Circle’s OpenUSD initiative introduces shared governance and reserve economics that increase the cost of maintaining USDC distribution, while agentic payment activity remains too small to contribute meaningfully to revenue. The brokerage estimated that agentic payments have fallen to roughly $41,900 in daily volume, implying an average transaction size of about $0.24.

The brokerage also questioned Circle’s long-term growth target, saying USDC has “effectively not grown” since the third quarter of last year despite management’s objective of averaging 40% annual growth across market cycles.

Stablecoin payments remain limited, report says

While payment companies including Mastercard and Stripe have expanded their stablecoin offerings, Morgan Stanley said commercial adoption has yet to produce meaningful transaction volumes outside a handful of use cases.

Drawing on data from McKinsey, the brokerage noted that stablecoins processed roughly $35 trillion in adjusted transaction volume during 2025. Only about $390 billion represented identifiable real-world payments, however, with most activity still tied to crypto trading and transfers rather than commerce.

Morgan Stanley said payment activity continues to be concentrated in cross-border business transactions, remittances and stablecoin-linked card spending. According to the report, those use cases have yet to generate the durable balances and recurring transaction economics needed to offset pressure on Circle’s reserve-income model.

TD Cowen has taken the opposite view on Circle

Offering a contrasting assessment, TD Cowen initiated coverage of Circle with a Buy rating and an $82 price target, arguing that investors may be underestimating the company’s ability to develop into a financial infrastructure platform beyond stablecoin issuance.

Analyst Bryan Bergin said Circle is building products across payments, treasury services, tokenized real-world assets, interoperability and developer infrastructure, which could diversify revenue over time alongside USDC circulation.

TD Cowen also described Circle as a way for investors to gain exposure to institutional adoption of stablecoins and the modernization of financial infrastructure.

Wall Street remains closely divided on the stock. LSEG data shows that 16 of the 30 analysts covering Circle currently rate the shares Hold or Sell, while the remaining 14 recommend Buy or Strong Buy.

Regulatory progress has continued despite investor concerns

The downgrade arrives only days after Circle strengthened its regulatory position in the United States by securing a limited-purpose trust charter from the New York Department of Financial Services for Circle Internet Trust Company LLC, operating as Circle New York Trust.

Circle said the state approval complements the federal trust bank authorization it received from the Office of the Comptroller of the Currency in July. While the OCC-approved Circle National Trust is expected to provide fiduciary digital asset custody services, the company has said USDC issuance will continue through its New York trust entity before gradually transitioning under its approved regulatory structure.

Chief executive Jeremy Allaire previously said obtaining a New York trust charter had been a long-standing objective because of the regulatory clarity provided by the NYDFS framework. Circle has also said the approval builds on its relationship with the regulator, which dates back to 2015 when it became the first company to receive a BitLicense.

The regulatory milestones have not translated into sustained support for the stock. Circle shares ended July 31 down 2.54%, and on the same day Cathie Wood’s ARK Invest purchased 109,129 Circle shares across three exchange-traded funds, increasing its exposure to the stablecoin issuer ahead of the company’s scheduled second-quarter earnings release on Aug. 5.

Investors are also watching the proposed Clarity Act, which is expected to establish a regulatory framework for the U.S. cryptocurrency industry. Morgan Stanley’s latest report indicates that, despite improving regulatory oversight, future performance will still depend on USDC adoption, transaction activity, and Circle’s ability to generate revenue beyond reserve income.